Gordon Company started operations on January 1, 2012, and has used the FIFO meth

Question

Gordon Company started operations on January 1, 2012, and has used the FIFO method of inventory valuation since its inception. In 2018, it decides to switch to the average-cost method. You are provided with the following information. Under FIFQ Under Average-Cost Under FIFO 2012 $100,000 2013 201470,000 2015 90,000 $90,000 65,000 80,000 130,000 290,000 310,000 $100,000 160,000 235,000 340,000 590,000 780,000 2016 2017 120,000 300,000 305,000 Instructions (a) What is the beginning retained earnings balance at January 1, 2014, if Gordon prepares comparative financial statements starting in 2014? (b) What is the beginning retained earnings balance at January 1, 2017, if Gordon prepares comparative financial statements starting in 2017? Show all calculations

Explanation / Answer

Calculations:
2012: 100,000-90,000 = 10,000
2013: 70,000-65,000 = 5,000
2014: 90,000-80,000 = 10,000
2015: 120,000-130,000 = (10,000)
2016: 300,000-290,000 = 10,000

a Retained earnings, January 1- Reported 160000 Cumulative effect of change in accountingprinciple to average cost(2012 & 2013)(100,000-90,000) + (70,000 – 65,000) 15000 Retained earnings, January 1 – Adjusted 145000 b Retained earnings, January 1- Reported 590000 Cumulative effect of change in accountingprinciple to average cost( 2012 thru 2016)(10,000+5,000+10,000-10,000+10,000) 25000 Retained earnings, January 1 – Adjusted 565000

Calculations:
2012: 100,000-90,000 = 10,000
2013: 70,000-65,000 = 5,000
2014: 90,000-80,000 = 10,000
2015: 120,000-130,000 = (10,000)
2016: 300,000-290,000 = 10,000

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