The management of Sarasota Instrument Company had concluded, with the concurrence of its independent auditors, that results of operations would be more fairly presented if Sarasota changed its method of pricing inventory from last-in, first-out (LIFO) to average-cost in 2020. Given below is the 5-year summary of income under LIFO and a schedule of what the inventories would be if stated on the average-cost method. SARASOTA INSTRUMENT COMPANY STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEARS ENDED MAY 31 2016 2017 2018 2019 2020 Sales—net $14,080 $15,420 $16,530 $18,390 $19,030 Cost of goods sold Beginning inventory 990 1,100 990 1,120 1,230 Purchases 12,910 13,810 15,100 15,740 17,598 Ending inventory (1,100) (990) (1,120) (1,230) (1,380) Total 12,800 13,920 14,970 15,630 17,448 Gross profit 1,280 1,500 1,560 2,760 1,582 Administrative expenses 700 760 830 910 1,000 Income before taxes 580 740 730 1,850 582 Income taxes (50%) 290 370 365 925 291 Net income 290 370 365 925 291 Retained earnings—beginning 1,200 1,490 1,860 2,225 3,150 Retained earnings—ending $1,490 $1,860 $2,225 $3,150 $3,441 Earnings per share $2.90 $3.70 $3.65 $9.25 $2.91 SCHEDULE OF INVENTORY BALANCES USING AVERAGE-COST METHOD FOR THE YEARS ENDED MAY 31 2015 2016 2017 2018 2019 2020 $1,000 $1,120 $1,100 $1,280 $1,490 $1,720 Prepare comparative statements for the 5 years, assuming that Sarasota changed its method of inventory pricing to average-cost. Indicate the effects on net income and earnings per share for the years involved. Sarasota Instruments started business in 2015. Assume that the number of shares outsanding is 100. (Enter amounts that decrease cost of goods sold using either a negative sign preceding the number e.g. -15,000 or parentheses e.g. (15,000). Round all amounts except EPS to the nearest whole dollar, e.g. 5,275. Round Earnings Per Share to 2 decimal places, e.g. 1.62. Round up the tax effects to the next whole dollar.) (Please show calculations on Retained earnings- beginning, - ending, and earnings per share.) Retained earnings—beginning: As originally reported enter a dollar amount enter a dollar amount enter a dollar amount enter a dollar amount enter a dollar amount Adjustment enter a dollar amount enter a dollar amount enter a dollar amount enter a dollar amount enter a dollar amount As restated enter a dollar amount enter a dollar amount enter a dollar amount enter a dollar amount enter a dollar amount Retained earnings—ending Earnings per share

The management of Sarasota Instrument Company had concluded, with the concurrence of its independent auditors, that results of operations would be more fairly presented if Sarasota changed its method of pricing inventory from last-in, first-out (LIFO) to average-cost in 2020. Given below is the 5-year summary of income under LIFO and a schedule of what the inventories would be if stated on the average-cost method. SARASOTA INSTRUMENT COMPANY STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEARS ENDED MAY 31 2016 2017 2018 2019 2020 Sales—net $14,080 $15,420 $16,530 $18,390 $19,030 Cost of goods sold Beginning inventory 990 1,100 990 1,120 1,230 Purchases 12,910 13,810 15,100 15,740 17,598 Ending inventory (1,100) (990) (1,120) (1,230) (1,380) Total 12,800 13,920 14,970 15,630 17,448 Gross profit 1,280 1,500 1,560 2,760 1,582 Administrative expenses 700 760 830 910 1,000 Income before taxes 580 740 730 1,850 582 Income taxes (50%) 290 370 365 925 291 Net income 290 370 365 925 291 Retained earnings—beginning 1,200 1,490 1,860 2,225 3,150 Retained earnings—ending $1,490 $1,860 $2,225 $3,150 $3,441 Earnings per share $2.90 $3.70 $3.65 $9.25 $2.91 SCHEDULE OF INVENTORY BALANCES USING AVERAGE-COST METHOD FOR THE YEARS ENDED MAY 31 2015 2016 2017 2018 2019 2020 $1,000 $1,120 $1,100 $1,280 $1,490 $1,720 Prepare comparative statements for the 5 years, assuming that Sarasota changed its method of inventory pricing to average-cost. Indicate the effects on net income and earnings per share for the years involved. Sarasota Instruments started business in 2015. Assume that the number of shares outsanding is 100. (Enter amounts that decrease cost of goods sold using either a negative sign preceding the number e.g. -15,000 or parentheses e.g. (15,000). Round all amounts except EPS to the nearest whole dollar, e.g. 5,275. Round Earnings Per Share to 2 decimal places, e.g. 1.62. Round up the tax effects to the next whole dollar.) (Please show calculations on Retained earnings- beginning, - ending, and earnings per share.) Retained earnings—beginning: As originally reported enter a dollar amount enter a dollar amount enter a dollar amount enter a dollar amount enter a dollar amount Adjustment enter a dollar amount enter a dollar amount enter a dollar amount enter a dollar amount enter a dollar amount As restated enter a dollar amount enter a dollar amount enter a dollar amount enter a dollar amount enter a dollar amount Retained earnings—ending Earnings per share

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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SARASOTA INSTRUMENT COMPANY STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEARS ENDED MAY 31
	2016	2017		2018	2019	2020
Sales—net	$14,080		$15,420		$16,530		$18,390	$19,030
Cost of goods sold
Beginning inventory	990		1,100		990		1,120	1,230
Purchases	12,910		13,810		15,100		15,740	17,598
Ending inventory	(1,100)	(990)		(1,120)	(1,230)	(1,380)
Total	12,800		13,920		14,970		15,630	17,448
Gross profit	1,280		1,500		1,560		2,760	1,582
Administrative expenses	700		760		830		910	1,000
Income before taxes	580		740		730		1,850	582
Income taxes (50%)	290		370		365		925	291
Net income	290		370		365		925	291
Retained earnings—beginning	1,200		1,490		1,860		2,225	3,150
Retained earnings—ending	$1,490		$1,860		$2,225		$3,150	$3,441
Earnings per share	$2.90		$3.70		$3.65		$9.25	$2.91

SCHEDULE OF INVENTORY BALANCES USING AVERAGE-COST METHOD FOR THE YEARS ENDED MAY 31
2015		2016		2017		2018		2019		2020
$1,000		$1,120		$1,100		$1,280		$1,490		$1,720

Prepare comparative statements for the 5 years, assuming that Sarasota changed its method of inventory pricing to average-cost. Indicate the effects on net income and earnings per share for the years involved. Sarasota Instruments started business in 2015. Assume that the number of shares outsanding is 100. (Enter amounts that decrease cost of goods sold using either a negative sign preceding the number e.g. -15,000 or parentheses e.g. (15,000). Round all amounts except EPS to the nearest whole dollar, e.g. 5,275. Round Earnings Per Share to 2 decimal places, e.g. 1.62. Round up the tax effects to the next whole dollar.)

(Please show calculations on Retained earnings- beginning, - ending, and earnings per share.)

Retained earnings—ending
Retained earnings—beginning:
As originally reported	enter a dollar amount	enter a dollar amount	enter a dollar amount	enter a dollar amount	enter a dollar amount
Adjustment	enter a dollar amount	enter a dollar amount	enter a dollar amount	enter a dollar amount	enter a dollar amount
As restated	enter a dollar amount	enter a dollar amount	enter a dollar amount	enter a dollar amount	enter a dollar amount

Earnings per share

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