Blue Co. decides at the beginning of 2017 to adopt the FIFO method of inventory
ID: 2548477 • Letter: B
Question
Blue Co. decides at the beginning of 2017 to adopt the FIFO method of inventory valuation. Blue had used the LIFO method for financial reporting since its inception on January 1, 2015, and had maintained records adequate to apply the FIFO method retrospectively. Blue concluded that FIFO is the preferable inventory method because it reflects the current cost of inventory on the balance sheet. The following table presents the effects of the change in accounting principles on inventory and cost of goods sold Inventory Determined by Cost of Goods Sold Determined by LIFO Method FIFO Method LIFO Method FIFO Method Date January 1, 2015 December 31, 2015 December 31, 2016 December 31, 2017 90 190 290 8 250 380 750 1,030 1,070 832 1,040 Retained earnings reported under LIFO are as follows Retained Earnings Balance December 31, 2015 December 31, 2016 December 31, 2017 $950 1,620 2,250 Other information: 1. For each year presented, sales are $2,750 and operating expenses are $1,050 Blue provides two years of financial statements. Earnings per share information is not required 2. Your answer is correct. Prepare income statements under LIFO for 2015, 2016, and 2017 BLUE CO. Income Statement For the Year Ended December 31 LIFO 2015 2016 2017 Sales 2750 2750 2750 Cost of Goods Sold 750 1030 1070 Operating Expenses 1050 1050 1050 Net Income/ (Loss) 950 670 630Explanation / Answer
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2016 2017 Retained Earnning, January 1 as reported 950 Less: Adjustment for change of method (950-868) 82 Retained Earnning, January 1 as adjusted 868 1680 Net income/(Loss) 812 660 Retained Earning, December 31 1680 2340