Question

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The management of Flint Instrument Company had concluded, with the concurrence of its independent auditors, that...

The management of Flint Instrument Company had concluded, with the concurrence of its independent auditors, that results of operations would be more fairly presented if Flint changed its method of pricing inventory from last-in, first-out (LIFO) to average-cost in 2017. 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.

FLINT INSTRUMENT COMPANY STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEARS ENDED MAY 31
	2013	2014	2015	2016	2017
Sales—net	$13,960	$15,570	$16,840	$18,260	$18,900
Cost of goods sold
Beginning inventory	1,000	1,100	1,010	1,120	1,250
Purchases	12,910	13,800	15,150	15,790	17,741
Ending inventory	(1,100)	(1,010)	(1,120)	(1,250)	(1,360)
Total	12,810	13,890	15,040	15,660	17,631
Gross profit	1,150	1,680	1,800	2,600	1,269
Administrative expenses	710	760	830	900	980
Income before taxes	440	920	970	1,700	289
Income taxes (50%)	220	460	485	850	145
Net income	220	460	485	850	144
Retained earnings—beginning	1,210	1,430	1,890	2,375	3,225
Retained earnings—ending	$1,430	$1,890	$2,375	$3,225	$3,369
Earnings per share	$2.20	$4.60	$4.85	$8.50	$1.44

SCHEDULE OF INVENTORY BALANCES USING AVERAGE-COST METHOD FOR THE YEARS ENDED MAY 31
2012	2013	2014	2015	2016	2017
$1,010	$1,120	$1,110	$1,270	$1,510	$1,710

Prepare comparative statements for the 5 years, assuming that Flint changed its method of inventory pricing to average-cost. Indicate the effects on net income and earnings per share for the years involved. Flint Instruments started business in 2012. (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.)

FLINT INSTRUMENT COMPANY
Statement of Income and Retained Earnings
For the Years Ended May 31

2013 2014

2015

2016

2017

sales-net

cogs-beginning inventory

purchases

ending inventory

total

gross profit

administrative expenses

income before taxes

income taxes

net income

retained earnings-beginning: as originally reported

adjustment

as restated

retained earnings-ending

earnings per share

(it wasn't letting me copy chart so for every year there needs to be 5 line items across and 15 line items down)

Expert Solution

The comparative statements for 5 years are prepared as below:

FLINT INSTRUMENT COMPANY
Statement of Income and Retained Earnings
For the Years Ended May 31
	2013	2014	2015	2016	2017
Sales-Net	13,960	15,570	16,840	18,260	18,900
Cost of Goods Sold
Beginning Inventory	1,010	1,120	1,110	1,270	1,510
Purchases	12,910	13,800	15,150	15,790	17,741
Ending Inventory	-1,120	-1,110	-1,270	-1,510	-1,710
Total	12,800	13,810	14,990	15,550	17,541
Gross Profit	1,160	1,760	1,850	2,710	1,359
Administrative Expenses	710	760	830	900	980
Income before Taxes	450	1,000	1,020	1,810	379
Income Taxes (50%)	225	500	510	905	190
Net Income	225	500	510	905	190
Retained Earnings - Beginning: As Originally Reported	1,210	1,430	1,890	2,375	3,225
Adjustment (Refer to Notes Below)	5	10	50	75	130
As Restated	1,215	1,440	1,940	2,450	3,355
Retained Earnings - Ending	1,440	1,940	2,450	3,355	3,545
Earnings Per Share (100 Shares)	2.25	5.00	5.10	9.05	1.90

______

The effect on income retained earnings is shown in the below table:

	Increase In
	2013	2014	2015	2016	2017
Net Income	5 (225 - 220)	40 (500 - 460)	25 (510 - 485)	55 (905 - 850)	46 (190 - 144)
Earnings Per Share	0.05	0.40	0.25	0.55	0.46

______

Notes:

The adjustment to beginning value of retained earnings is determined as below:

Schedule of Income Reconciliation and Retained Earnings Adjustments
2013 to 2017
	2012	2013	2014	2015	2016	2017
Beginning Inventory - LIFO		1,000	1,100	1,010	1,120	1,250
Average Cost		1,010	1,120	1,110	1,270	1,510
Difference		-10	-20	-100	-150	-260
Tax Effect (50%)		5	10	50	75	130
Effect on Income		-5	-10	-50	-75	-130

Ending Inventory - LIFO	1,000	1,100	1,010	1,120	1,250	1,360
Average Cost	1,010	1,120	1,110	1,270	1,510	1,710
Difference	-10	-20	-100	-150	-260	-350
Tax Effect (50%)	5	10	50	75	130	175
Effect on Income	5	10	50	75	130	175

Net Effect on Income	5	5	40	25	55	45
Cumulative Effect on Beginning Retained Earnings		10	50	75	130	175

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