Madden International Industries Madden International Industries has used the FIFO inventory since it started business 10 years ago. It has decided that it take advantage of tax deferment and would switch to the LIFO method effective January 1, 2018 for the 2018 financial year. Madden International uses a periodic inventory system. Records are not available such that years prior to 2017 can be restated. That means that the difference in the January 1, 2017 inventory is an adjustment to January 1, 2017 retained earnings (net of tax). Selling and administrative expenses for 2018 are $33,600. The tax rate for all periods is 40%. Here are the end products needed: 1. Restated (for LIFO) income statement and retained earnings statement for 2017 2. Income and retained earnings statement for 2018, using LIFO 3. Entries to adjust inventory, retained earnings and taxes as of January 1, 2018 4. Journal entries to close purchases and adjust inventories and to create a cost of goods sold for 2018. To solve this problem, create cost of goods T accounts for 2017 under FIFO and LIFO and for 2018 under LIFO only For 2018, you really only need a cost of goods sold using the FIFO method since the change will be effective for 2018. These are the inventories on January 1, 2017: LIFO FIFO 300 @ 18 5,400 500 @ $28 200 @ 22 4,400 14,000 Transactions for 2017: Purchases 800 @30 700 @32 Sold 1200 @ 60 24,000 22,400 72,000 Transactions for 2018: Purchases 1,000 @ 34 1,200 @ 36 Sold 1800 @$79 34,000 43,200 142,200 Income Statements Original 2017 Sales Cost of goods sold Gross profit S&A Expenses Income before tax Tax provision Net income 72,000 35,000 37,000 19,000 18,000 -7,200 10,800 Retained earnings Balance, 1/1/17 Net income Balance, 12/31/17 130,000 10,800 140,800