Question: On January 1, 2011, Down Under, Inc. decided to change from the LIFO method of inventory valuation to the FIFO method. The net income (using
On January 1, 2011, Down Under, Inc. decided to change from the LIFO method of inventory valuation to the FIFO method. The net income (using LIFO) for the four years Down Under has been in business is as follows:
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Analysis of the inventory records revealed that the following inventories were on hand at the end of each year as valued under both the LIFO and FIFO methods.
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For simplicity, assume that Down Under's sales for each year are $500,000. The income tax rate is 40%. Down Under has only two expenses'cost of goods sold and income tax expense.
Instructions:
1. Prepare the 3-year comparative income statement for 2011 which will include FIFO numbers for 2011 and retrospectively adjusted FIFO numbers for 2009 and 2010. And then calculate cost of goods sold using pretax income and sales.
2. Prepare the 3-year comparative retained earnings statement for Down Under for 2011. Note that the company started business on January 1, 2008.
Dividends declared and paid have been as follows: 2008'$10,000; 2009' $15,000; 2010'$15,000; 2011'$25,000.
3. Prepare the year-by-year income statement note disclosure that Down Under must provide in the notes to its 2011 financialstatements.
2008 2009 $120000 2010 $156.000 180,000 138,000 2011 LIFO Method FIFO Method January I, 2008 December 31, 2008 December 31, 2009 December 31, 2010 December 31, 2011 78,000 220,000 252,000 295,000 208,000 216,000 290,000 349,000
Step by Step Solution
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1 Computation of FIFO Net Income 2011 2010 2009 2008 LIFO net income 180000 156000 138000 120000 Add subtract income effect from change in FIFO cost of goods sold computed using the annual change in t... View full answer
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