Problem 22-1 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 2017. 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 RETAIN ED EARNINGS FOR THE YEARS ENDED MAY 31 2013 2014 2015 2016 2017 Sales-net $13,960 $15,660 $16,810 $18,060 $18,940 Cost of goods sold Beginning inventory 1,010 1.110 990 1.100 1.230 Purchases 12,910 13,880 14.860 15,940 17.175 (1,100) (066) 14,750 Ending inventory (1,110) (1,230) (1,380) Total 17,025 12,810 14,000 15,810 Gross profit 1.150 1.660 2,060 2,250 1,915 Administrative expenses 690 770 840 910 1,000 Income before taxes 460 890 1,220 1,340 915 Income taxes (50%) 230 445 610 670 458 230 445 610 Net income 670 457 Retained earnings-beginning 1,200 1,430 1,875 2,485 3.155 Retained earnings-ending $2,485 $1,430 $1,875 $3,155 $3,612 $2.30 $4.45 $6.10 $6.70 $4.57 Earnings per share SCHEDULE OF INVENTORY BALANCES USING AVERAGE-COST MOD FOR THE YEARS ENDED MAY 31 2017 2012 2013 2014 2015 2016 $1.130 $1.090 $1.020 $1.260 $1,490 $1,720 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 2012. (Enter amounts that decrease cost of goods sold using either a negative sign preceding the number e.g. -15,000 or parentheses e.g. (15,000). Round all amounts except EPS to the nearest whole dollar, e.g. 5,275. Round Earnings Per Share to 2 decimal places, e.g. 1.62. Round up the tax effects to the next whole dollar.) FLOUNDER INSTRUMENT COMPANY Statement of Income and Retained Earnings For the Years Ended May 31 2013 2014 2015 2016 2017 Sales-net Cost of goods sold Beginning inventory Purchases Ending inventory Total Gross profit Administrative expenses Income before taxes Income taxes Net income Retained earnings-beginning: As originally reported Adjustment As restated Retained earnings-ending Earnings per share
