Halm Skidoos Limited a private company that began operations in Halm Skidoos Limited, a private company that began operations in 2014, always values its inventories at their current net realizable value. The company uses ASPE. Its annual inventory figure is arrived at by taking a physical count and then pricing each item in the physical inventory at current resale prices. The condensed income statements for the company's past four years are as follows:

		2017	2018	2019	2020
Sales		$850,000	$880,000	$950,000	$990,000
Cost of goods sold		$560,000	$590,000	$630,000	$650,000
Gross profit		$290,000	$290,000	$320,000	$340,000
Operating expense		$190,000	$180,000	$200,000	$210,000
Income before taxes		$100,000	$110,000	$120,000	$130,000

a. Comment on the procedures that Halm uses for valuing inventories.

b. Prepare corrected condensed income statements using an acceptable method of inventory valuation, assuming that the inventory at cost and as determined by the corporation (using net realizable value) at the end of each of the four years is as follows:

Year	At Cost	Net Realizable Value
2017	$ 150,000	$ 160,000
2018	$ 147,000	$ 160,000
2019	$ 178,000	$ 170,000
2020	$ 175,000	$ 189,000

c. Compare the trend in income for the four years using the corporation's approach to valuing ending inventory and using a method that is acceptable under GAAP.

d. Calculate the cumulative effect of the difference in the valuation of inventory on the ending balance of retained earnings from 2014 through 2017.

e. Comment on the differences that you observe after making the corrections to the inventory valuation over the four years.