Ramirez Co. decides at the beginning of 2012 to adopt the FIFO method of inventory valuation. Ramirez had used the LIFO method for financial reporting since its inception on January 1, 2010, and had maintained records adequate to apply the FIFO method retrospectively. Ramirez concluded that FIFO is the preferable inventory method because it reflects the current cost of inventory on the balance sheet. The table presents the effects of the change in accounting principle on inventory and cost of goods sold.
|
|
Inventory Determined by |
|
Cost of Goods Sold Determined by |
|
Date
|
|
LIFO Method
|
|
FIFO Method
|
|
LIFO Method
|
|
FIFO Method
|
| January 1, 2010 |
|
$ 0 |
|
$ 0 |
|
$ 0 |
|
$ 0 |
| December 31, 2010 |
|
105 |
|
70 |
|
796 |
|
831 |
| December 31, 2011 |
|
201 |
|
243 |
|
1,007 |
|
930 |
| December 31, 2012 |
|
328 |
|
402 |
|
1,135 |
|
1,103 |
Retained earnings reported under LIFO are as follows.
|
|
Retained Earnings Balance
|
| December 31, 2010 |
|
$2,188 |
| December 31, 2011 |
|
4,165 |
| December 31, 2012 |
|
6,014 |
Other information:
| 1. |
|
For each year presented, sales are $4,083 and operating expenses are $1,099. |
| 2. |
|
Ramirez provides two years of financial statements. Earnings per share information is not required. |
(a) Prepare income statements under LIFO and FIFO for 2010, 2011, and 2012.
(b) Prepare income statements reflecting the retrospective application of the accounting change from the LIFO method to the FIFO method for 2012 and 2011.
(c) Prepare the note to the financial statements describing the change in method of inventory valuation. In the note, indicate the income statement line items for 2012 and 2011 that were affected by the change in accounting principle.
(d) Prepare comparative retained earnings statements for 2011 and 2012 under FIFO.