Question

In 2022, Karen Corporation changed its method of inventory pricing from LIFO to FIFO. Net income computed on a LIFO as compared to a FIFO basis for the four years involved is: (Ignore income taxes.) LIFO FIFO 2019 $78,800 $87,200 2020 84,400 88,700 2021 86,300 90,000 2022 92,400 92,500 Indicate the net income that would be shown on comparative financial statements issued at 12/31/22 for each of the four years, assuming that the company changed to the FIFO method in 2022. Net Income 2019 $ 2020 $ 2021 $ 2022 $ Assume that the company had switched from the average cost method to the FIFO method with net income on an average cost basis for the four years as follows: 2019, $80,400; 2020, $86,120; 2021, $90,300; and 2018, $93,600. Indicate the net income that would be shown on comparative financial statements issued at 12/31/22 for each of the four years under these conditions. Net Income 2019 $ 2020 $ 2021 $ 2022 $ Assuming that the company switched from the FIFO to the LIFO method, what would be the net income reported on comparative financial statements issued at 12/31/22 for 2019, 2020, and 2021? Net Income 2019 $ 2020 $ 2021 $

Answer 1

(a) Net income that would be shown on comparative financial statements issued at 12/31/22 for each of the four years, assuming that the company changed to the FIFO method in 2022:

2019, $87,200; 2020, $88,700; 2021, $90,000; 2022, $92,500, (Retrospective restatement).

(b) Net income that would be shown on comparative financial statements issued at 12/31/22 for each of the four years under these conditions:

2019, $87,200; 2020, $88,700; 2021, $90,000; 2022, $92,500, (Retrospective restatement).

(c) Assuming that the company switched from the FIFO to the LIFO method, the net income reported on comparative financial statements issued at 12/31/22 for 2019, 2020, and 2021 would be:

2019, $87,200; 2020, $88,700; 2021, $90,000; (Retrospective application impractical).

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