Presented below are income statements prepared on a LIFO and FIFO basis for Martinez Company,...
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Presented below are income statements prepared on a LIFO and FIFO basis for Martinez 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. Martinezs 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
$3,010
$3,010
$3,010
$3,010
Cost of Goods Sold
$1,150
$980
$1,060
$950
Operating Expenses
$980
$980
$980
$980
Income before Profit-Sharing
$880
$1,050
$970
$1,080
Profit-Sharing Expense
$88
$105
$100
$105
Net Income
$792
$945
$870
$975
Answer the following questions.
(a) If comparative income statements are prepared, what net income should Martinez report in 2016 and 2017?
(b) Assume that Martinez has a beginning balance of retained earnings at January 1, 2017, of $ 945 using the LIFO method. The company declared and paid dividends of $ 490 in 2017. Prepare the retained earnings statement for 2017, assuming that Martinez has switched to the FIFO method.
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