Problem 22-01

The management of Flounder Instrument Company had concluded, with the concurrence of its independent auditors, that results of operations would be more fairly presented if Flounder changed its method of pricing inventory from last-in, first-out (LIFO) to average-cost in 2020. Given below is the 5-year summary of income under LIFO and a schedule of what the inventories would be if stated on the average-cost method.

FLOUNDER INSTRUMENT COMPANY STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEARS ENDED MAY 31
		2016			2017			2018			2019			2020
Salesnet		$14,070			$15,470			$16,570			$18,290			$18,760
Cost of goods sold
Beginning inventory		990			1,080			1,010			1,130			1,230
Purchases		12,920			13,810			14,950			15,820			17,456
Ending inventory		(1,080)			(1,010)			(1,130)			(1,230)			(1,380)
Total		12,830			13,880			14,830			15,720			17,306
Gross profit		1,240			1,590			1,740			2,570			1,454
Administrative expenses		690			760			830			910			980
Income before taxes		550			830			910			1,660			474
Income taxes (50%)		275			415			455			830			237
Net income		275			415			455			830			237
Retained earningsbeginning		1,210			1,485			1,900			2,355			3,185
Retained earningsending		$1,485			$1,900			$2,355			$3,185			$3,422
Earnings per share		$2.75			$4.15			$4.55			$8.30			$2.37

SCHEDULE OF INVENTORY BALANCES USING AVERAGE-COST METHOD FOR THE YEARS ENDED MAY 31
2015		2016		2017		2018		2019		2020
$1,000		$1,100		$1,130		$1,280		$1,490		$1,740

Prepare comparative statements for the 5 years, assuming that Flounder changed its method of inventory pricing to average-cost. Indicate the effects on net income and earnings per share for the years involved. Flounder Instruments started business in 2015. Assume that the number of shares outsanding is 100. (Enter amounts that decrease cost of goods sold using either a negative sign preceding the number e.g. -15,000 or