Question

Gordon Company started operations on January 1, 2015, and has used the FIFO method of inventory valuation since its inception. In 2021, 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
2015
$100,000
$  90,000
$100,000
2016
    70,000
    65,000
  160,000
2017
    90,000
    80,000
  235,000
2018
  120,000
  130,000
  340,000
2019
  300,000
  290,000
  590,000
2020
  305,000
  310,000
  780,000

Instructions

a.    What is the beginning retained earnings balance at January 1, 2017, if Gordon prepares comparative financial statements starting in 2017?

b.    What is the beginning retained earnings balance at January 1, 2020, if Gordon prepares comparative financial statements starting in 2020?

c.    What is the beginning retained earnings balance at January 1, 2021, if Gordon prepares single-period financial statements for 2021?

d.    What is the net income reported by Gordon in the 2020 income statement if it prepares comparative financial statements starting with 2018?

 

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