Question

Exercise 22-03

Cheyenne Co. decides at the beginning of 2020 to adopt the FIFO method of inventory valuation. Cheyenne had used the LIFO method for financial reporting since its inception on January 1, 2018, and had maintained records adequate to apply the FIFO method retrospectively. Cheyenne 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. Income taxes are ignored.

		Inventory Determined by		Cost of Goods Sold Determined by
Date		LIFO Method		FIFO Method		LIFO Method		FIFO Method
January 1, 2018		$ 0		$ 0		$ 0		$ 0
December 31, 2018		100		8		850		942
December 31, 2019		180		250		990		828
December 31, 2020		310		400		1,230		1,210

Retained earnings reported under LIFO are as follows.

		Retained Earnings Balance
December 31, 2018		$920
December 31, 2019		1,700
December 31, 2020		2,240

Other information:

1.		For each year presented, sales are $2,780 and operating expenses are $1,010.
2.		Cheyenne provides two years of financial statements. Earnings per share information is not required.

Prepare comparative retained earnings statements for 2019 and 2020 under FIFO.

		2019		2020
select an opening name		$enter a dollar amount		$enter a dollar amount
select between addition and deduction   : select an item		enter a dollar amount		enter a dollar amount
select a summarizing line for the first part		$enter a total amount for the first part		enter a total amount for the first part
select an item		enter a dollar amount		enter a dollar amount
select a closing name		$enter a total amount		$enter a total amount

Answer 1

Step 1 INCOME STATEMENTS UNDER LIFO METHOD

	2018	2019	2020
Sales	$2,780	$2,780	$2,780
Less - COGS	$850	$990	$1,230
Less - Operating expenses	$1,010	$1,010	$1,010
Net Income	$920	$780	$540

$$$$

Step 2INCOME STATEMENTS UNDER FIFO METHOD

	2018	2019	2020
Sales	$2,780	$2,780	$2,780
Less - COGS	$942	$828	$1,210
Less - Operating expenses	$1,010	$1,010	$1,010
Net Income	$828	$942	$560

$$$$

Step 3 Retrospective effect of Change from LIFO to FIFO

	2019	2020
Sales	$2,780	$2,780
COGS ( Net Income + Operating Expenses)	$1,952	$1,570
opearting Expenses	$1,010	$1,010
Net Income	$942	$560

$$$$

Step 4 comparative retained earnings statements for 2019 and 2020 under FIFO.

	2019	2020
Retained Earnings, January 1 as reported	920
Add: Adjustment for change of method (920-828)	92
Retained Earnings, January 1 as adjusted	828	1,770
Net income/(Loss)	942	560
Retained Earnings, December 31	1,770	2,330