On January 1, 2013, 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:

2010 . . . . . . . . . . . . . . $120,000. . . . . . . . . . . . . . 2012 . . . . . . . . . . . . . . $156,000

2011 . . . . . . . . . . . . . . 138,000. . . . . . . . . . . . . . . 2013 . . . . . . . . . . . . . . 180,000

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.

LIFO Method FIFO Method

January 1, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0. . . . . . . . . . . . . . . $ 0

December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178,000. . . . . . . . . . . 208,000

December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220,000. . . . . . . . . . . 216,000

December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252,000. . . . . . . . . . . 290,000

December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295,000. . . . . . . . . . . 349,000

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 2013 which will include FIFO numbers for 2013 and retrospectively adjusted FIFO numbers for 2011 and 2012.

2. Prepare the 3-year comparative retained earnings statement for Down Under for 2013. Note that the company started business on January 1, 2010. Dividends declared and paid have been as follows: 2010-$10,000; 2011-$15,000; 2012-$15,000; 2013-$25,000.

3. Prepare the year-by-year income statement note disclosure that Down Under must provide in the notes to its 2013 financial statements.