Exercise 22-5 (Part Level Submission)

Presented below are income statements prepared on a LIFO and FIFO basis for Cheyenne Company, which started operations on January 1, 2016. The company presently uses the LIFO method of pricing its inventory and has decided to switch to the FIFO method in 2017. The FIFO income statement is computed in accordance with the requirements of GAAP. Cheyennes profit-sharing agreement with its employees indicates that the company will pay employees 10% of income before profit-sharing. Income taxes are ignored.

LIFO Basis FIFO Basis

2017 2016 2017 2016

Sales $2,970 $2,970 $2,970 $2,970

Cost of goods sold 1,180 1,040 1,100 910

Operating expenses 1,010 1,010 1,010 1,010

Income before profit-sharing 780 920 860 1,050

Profit-sharing expense 78 92 99 92

Net income $702 $828 $761 $958

Answer the following questions.

a) If comparative income statements are prepared, what net income should Cheyenne report in 2016 and 2017?

b) Assume that Cheyenne has a beginning balance of retained earnings at January 1, 2017, of $828 using the LIFO method. The company declared and paid dividends of $470 in 2017. Prepare the retained earnings statement for 2017, assuming that Cheyenne has switched to the FIFO method. (Round answers to 0 decimal places, e.g. 125.)