1. The financial statements using FIFO of Grady Companyfor 2016 and 2017 appear

Question

1. The financial statements using FIFO of Grady Companyfor 2016 and 2017 appear below: Dec 31, 2017 Dec 31,2016 Cash Receivables Inventories (FIFO) Other Assets 510,000 12,000 21,000 $15,000 10,000 18,000 $63,000 573,000 $30,000 573,000 S.10.000 Capital Stock Retained Earnings43,000 $30,000 33.000 $63,000 5 10,000 S.33.000 $33,000 Income Retained Earnings 1/1 $ 33,000 Dividends Retained Earnings 12/315 43,000 10,000) Grady changed to LIFO at the beginning of 2017. December 31 inventories at LIFO were $14,000for 2016 and $20,000 for 2017, The beginning inventory of 2016 waszero. A. Recast the above Income and Retained Earnings statement for 2017 under LIFO, assuming that 2017 will be shown alone and without any comparison to 2016. B. Journalize the prior period correction at January 1, 2017

Explanation / Answer

I)Computation of income account as on 12-31-2016 Amount a)Income as on 12-31-2016 $10,000 b)Decrease in inventory ($4,000) Revised income $6,000 II)Computation of retained earnings account as on 12-31-2016 Amount a)Revised Income as on 12-31-2016 $6,000 b)Beginning retained earnings 33,000 c)Less -Dividend (10,000) $29,000 III)Computation of income account as on 12-31-2017 Amount a)Income as on 12-31-2017 $10,000 b)Increase in opening inventory 4,000 c)Decrease in closing inventory (1,000) $13,000 IV)Computation of retained earnings account as on 12-31-2017 Amount a)Revised Income as on 12-31-2017 $13,000 b)Beginning retained earnings 29,000 c)Less -Dividend $42,000 Journal entry Date Particulars Debit Credit 1/1/2017 Retained earnings 1,000 Inventory 1,000 (Adjustment on change in inventory from LIFO to FIFO

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