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
	2013	2014	2015	2016	2017
Salesnet
Cost of goods sold
Beginning inventory
Purchases
Ending inventory
Total
Gross profit
Administrative expenses
Income before taxes
Income taxes
Net income
Retained earningsbeginning: As originally reported
Adjustment
As restated
Retained earningsending
Earnings per share