AC 302 WEEK 8 Exercise 22 Question 4
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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
2009 $101,820 $91,710 $101,540
2010 69,300 64,170 159,340
2011 90,860 79,020 234,640
2012 120,440 129,930 339,100
2013 300,710 292,510 590,990
2014 305,810 310,900 780,730
(a) What is the beginning retained earnings balance at January 1, 2011, if Gordon prepares comparative financial statements starting in 2011?
Answer
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Exercise 22-4
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
2009 $101,820 $91,710 $101,540
2010 69,300 64,170 159,340
2011 90,860 79,020 234,640
2012 120,440 129,930 339,100
2013 300,710 292,510 590,990
2014 305,810 310,900 780,730
(a) What is the beginning retained earnings balance at January 1, 2011, if Gordon prepares comparative financial statements starting in 2011?
Retained earnings, January 1 $
(b) What is the beginning retained earnings balance at January 1, 2014, if Gordon prepares comparative financial statements starting in 2014?
Retained earnings, January 1 $
(c) What is the beginning retained earnings balance at January 1, 2015, if Gordon prepares single-period financial statements for 2015?
Retained earnings, January 1 $
(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 $
$
$
________________________________________
Solution
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Exercise 22-4
(a) 2011
Retained earnings, January 1, as reported
Cumulative effect of change in accounting principle to average cost (15,240 )*
Retained earnings, January 1, as adjusted
*[$10,110 (2009) + $5,130 (2010)] = ($15,240)
(b) 2014
Retained earnings, January 1, as reported
Cumulative effect of change in accounting principle to average cost (25,790 )*
Retained earnings, January 1, as adjusted
*[$10,110 (2009) + $5,130 (2010) + $11,840 (2011) - $9,490 (2012) +
Retained earnings, January 1, as reported
Cumulative effect of change in accounting principle to average cost (20,700 )*
Retained earnings, January 1, as adjusted
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