Question

# Cambi Company began operations on January 1, 2016. In the second quarter of 2017, it adopted...

Cambi Company began operations on January 1, 2016. In the second quarter of 2017, it adopted the FIFO method of inventory valuation. In the past, it used the LIFO method. The company’s interim income statements as originally reported under the LIFO method follow:

 2016 2017 1stQ 2ndQ 3rdQ 4thQ 1stQ Sales \$ 14,000 \$ 16,000 \$ 18,000 \$ 20,000 \$ 22,000 Cost of goods sold (LIFO) 4,400 5,400 6,200 7,400 8,900 Operating expenses 2,400 2,600 3,000 3,400 3,600 Income before income taxes \$ 7,200 \$ 8,000 \$ 8,800 \$ 9,200 \$ 9,500 Income taxes (40%) 2,880 3,200 3,520 3,680 3,800 Net income \$ 4,320 \$ 4,800 \$ 5,280 \$ 5,520 \$ 5,700

If the FIFO method had been used since the company began operations, cost of goods sold in each of the previous quarters would have been as follows:

 2016 2017 1stQ 2ndQ 3rdQ 4thQ 1stQ Cost of goods sold (FIFO) \$ 4,200 \$ 5,000 \$ 5,600 \$ 6,400 \$ 7,800

Sales for the second quarter of 2017 are \$24,000, cost of goods sold under the FIFO method is \$9,400, and operating expenses are \$3,800. The effective tax rate remains 40 percent. Cambi Company has 1,000 shares of common stock outstanding.

Prepare a schedule showing the calculation of net income and earnings per share that Cambi reports for the three-month period and the six-month period ended June 30, 2017. (Round "Earnings per share" answers to 2 decimal places.)

#### Homework Answers

Answer #1
 2017 1st Q 2nd Q (Three months period) Total (Six months Period) Sales \$22,000 \$24,000 \$46,000 Cost of goods sold (FIFO) -7,800 -9,400 -17,200 Gross margin 14,200 14,600 28,800 Operating expenses -3,600 -3,800 -7,400 Income before income tax 10,600 10,800 21,400 Income tax 40% -4,240 -4,320 -8,560 Net income \$6,360 \$6,480 \$12,840 Three month period Six month period Net income \$6,480 \$12,840 Earning per share (EPS) \$6.48 (\$6,480/1,000) \$12.84 (\$12,840/1,000)
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