Gordon Company started operations on January 1, 2009, and has used the FIFO meth
ID: 2423617 • Letter: G
Question
Gordon Company started operations on January 1, 2009, and has used the FIFO method of inventory valuation since its inception. In 2014, it decides to switch to the average cost method. You are provided with the following information.
Net Income
Retained Earnings
(Ending Balance)
Under FIFO
Under Average-Cost
Under FIFO
(a) What is the beginning retained earnings balance at January 1, 2011, if Gordon prepares comparative financial statements starting in 2011?
(b) What is the beginning retained earnings balance at January 1, 2014, if Gordon prepares comparative financial statements starting in 2014?
(c) What is the beginning retained earnings balance at January 1, 2015, if Gordon prepares single-period financial statements for 2015?
(d) What is the net income reported by Gordon in the 2014 income statement if it prepares comparative financial statements starting with 2012?
2012
2013
2014
Net Income
Retained Earnings
(Ending Balance)
Under FIFO
Under Average-Cost
Under FIFO
2009 $100,780 $91,750 $100,260 2010 70,300 64,390 160,770 2011 90,190 79,250 234,210 2012 119,640 129,050 339,580 2013 300,730 293,100 590,570 2014 304,490 310,920 780,030Explanation / Answer
(a)
Retained earnings, January 1, 2011 is $154,860 (See Working note).
(b)
Retained earnings, January 1, 2014 is $582,940 (See Working note).
(c)
Retained earnings, January 1, 2015 is $786,460 (See Working note).
(d) Net income for 2012, 2013, and 2014 are as follows:
Working note for Beginning Retained earnings calculations for (a), (b), and (c) above.
Netincome 2012 2013 2014 Net income under Average cost method $ 129,050 $ 293,100 $ 310,920Related Questions
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