Presented below are income statement prepared on a FIFO and LIFO basis for Marvel Inc. (Prior to 2013, there were no differences due to LIFO and FIFO.) The company presently uses the LIFO method of pricing its inventory and has decided to switch to FIFO method in 2014. The LIFO income statement is computed in accordance with GAAP requirements. Income taxes are ignored.

Instructions
(a) If comparative income statements are prepared, what net income should Marvel report in 2013 and 2014?
(b) Marvel’s profit-sharing agreement with its top management requires a contribution of 20% of income before profit sharing. Explain why, under the FIFO basis, Marvel reports $500 in 2013 and $580 in 2014 for its profit-sharing expense.
(c) Assume that Marvel has a beginning balance of retained earnings at January 1, 2014, of $25,000 using the LIFO method. The company declared and paid dividends of $1,000 in 2014. Prepare the retained earnings statement for 2014, assuming that Marvel has switched to the FIFOmethod.

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LIFO Basis FIFO Basis 2013 2014 2013 2014 $10,000 6,000 1,500 Income before profit sharing 2,500 500 $ 2,000 $10,000 $10,000 5,500 1,500 3,000 500 $1,760 2,500 $10,000 5,600 1,500 2,900 680 $ 2,220 Sales Cost of goods sold Operating expenses 6,300 1,500 2,200 440 Profit sharing expenses Net income