Presented below are income statements prepared on a LIFO and FIFO basis for Kenseth Company, which started operations on January 1, 2007. The company presently uses the LIFO method of pricing its inventory and has decided to switch to the FIFO method in 2008. The FIFO income statement is computed in accordance with the requirements of SFAS No. 154. Kenseth's profit-sharing agreement with its employees indicates that the company will pay employees 10% of income before profit sharing. Income taxes are ignored.

Instructions
Answer the following questions.
(a) If comparative income statements are prepared, what net income should Kenseth report in 2007 and 2008?
(b) Explain why, under the FIFO basis, Kenseth reports $100 in 2007 and $96 in 2008 for its profit-sharing expense.
(c) Assume that Kenseth has a beginning balance of retained earnings at January 1, 2008, of $8,000 using the LIFO method. The company declared and paid dividends of $2,000 in 2008. Prepare the retained earnings statement for 2008, assuming that Kenseth has switched to the FIFOmethod.

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LIFO Basis FIFO Basis 2008 2007 2008 2007 Sales Cost of goods sold Operating expenses Income before profit sharing Profit sharing expense Net income $3,000 1,130 1,000 870 87 S 783 $3,000 1,000 1.000 1,000 100 $3,000 1,100 1,000 900 96 $ 804 $3,000 940 1,000 1,060 100 900 $960