LIFO Basis FIFO Basis 2017 2016 2017 2016 2017 2016 CHEYENNE COMPANY Retained Ea

Question

LIFO Basis

FIFO Basis

2017

2016

2017

2016

2017

2016

CHEYENNE COMPANY
Retained Earnings Statement

Presented below are income statements prepared on a LIFO and FIFO basis for Cheyenne Company, which started operations on January 1, 2016. The company presently uses the LIFO method of pricing its inventory and has decided to switch to the FIFO method in 2017. The FIFO income statement is computed in accordance with the requirements of GAAP. Cheyenne’s profit-sharing agreement with its employees indicates that the company will pay employees 10% of income before profit-sharing. Income taxes are ignored.

LIFO Basis

FIFO Basis

2017

2016

2017

2016

Sales $3,080 $3,080 $3,080 $3,080 Cost of goods sold 1,090 990 1,110 940 Operating expenses 990 990 990 990 Income before profit-sharing 1,000 1,100 980 1,150 Profit-sharing expense 100 110 103 110 Net income $900 $990 $877 $1,040
Answer the following questions.

Explanation / Answer

a If comparitive income statements are prepared, what net income should cheyenne report in 2016 and 2017? Cheyyenne company Income statement For the year ended 2017 2016 Sales 3080 3080 Cost of goods sold 1110 940 Operating expenses 990 990 Income before profit sharing 980 1150 Profit sharing expense 103 110 Net income 877 1040 b Assume that cheyyene has a beginning balanace of retained earnings at january 1 2017 of $990 Retained earnings statement $ Retained earnings January 1 (reported) $990 Cummulative effect of change to FIFO (1040-990) $50 Retained earnings January 1 (adjusted) $1,040 Add: Net income $877 Deduct: Dividends ($530) Retained earnings, December 31 $347

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