Question
Problem 22-1 The management of Sunland Instrument Company had concluded, with the concurrence of its independent auditors, that results of operations would be more fairly
Problem 22-1
The management of Sunland Instrument Company had concluded, with the concurrence of its independent auditors, that results of operations would be more fairly presented if Sunland 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.
SUNLAND INSTRUMENT COMPANY STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEARS ENDED MAY 31 | |||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||
Salesnet | $14,010 | $15,410 | $16,760 | $18,140 | $19,050 | ||||||||||
Cost of goods sold | |||||||||||||||
Beginning inventory | 1,000 | 1,100 | 1,010 | 1,120 | 1,230 | ||||||||||
Purchases | 12,870 | 13,870 | 15,020 | 15,840 | 16,153 | ||||||||||
Ending inventory | (1,100) | (1,010) | (1,120) | (1,230) | (1,370) | ||||||||||
Total | 12,770 | 13,960 | 14,910 | 15,730 | 16,013 | ||||||||||
Gross profit | 1,240 | 1,450 | 1,850 | 2,410 | 3,037 | ||||||||||
Administrative expenses | 700 | 770 | 840 | 92 | 1,000 | ||||||||||
Income before taxes | 540 | 680 | 1,010 | 2,318 | 2,037 | ||||||||||
Income taxes (50%) | 270 | 340 | 505 | 1,159 | 1,019 | ||||||||||
Net income | 270 | 340 | 505 | 1,159 | 1,018 | ||||||||||
Retained earningsbeginning | 1,220 | 1,490 | 1,830 | 2,335 | 3,494 | ||||||||||
Retained earningsending | $1,490 | $1,830 | $2,335 | $3,494 | $4,512 | ||||||||||
Earnings per share | $2.70 | $3.40 | $5.05 | $11.59 | $10.18 |
SCHEDULE OF INVENTORY BALANCES USING AVERAGE-COST METHOD FOR THE YEARS ENDED MAY 31 | ||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||
$1,010 | $1,130 | $1,130 | $1,270 | $1,490 | $1,710 |
Prepare comparative statements for the 5 years, assuming that Sunland changed its method of inventory pricing to average-cost. Indicate the effects on net income and earnings per share for the years involved. Sunland 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.)
SUNLAND INSTRUMENT COMPANY Statement of Income and Retained Earnings For the Years Ended May 31 | |||||
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Salesnet |
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Cost of goods sold |
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Beginning inventory |
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Purchases |
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Ending inventory |
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Total |
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Gross profit |
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Administrative expenses |
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Income before taxes |
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Income taxes |
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Net income |
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Retained earningsbeginning: As originally reported |
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Adjustment |
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As restated |
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Retained earningsending |
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Earnings per share |
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