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 \$ 33,000 \$ 35,000 \$ 37,000 \$ 39,000 \$ 41,000 Cost of goods sold (LIFO) 6,300 7,300 8,100 9,300 10,800 Operating expenses 4,300 4,500 4,900 5,300 5,500 Income before income taxes \$ 22,400 \$ 23,200 \$ 24,000 \$ 24,400 \$ 24,700 Income taxes (40%) 8,960 9,280 9,600 9,760 9,880 Net income \$ 13,440 \$ 13,920 \$ 14,400 \$ 14,640 \$ 14,820

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) \$ 6,100 \$ 6,900 \$ 7,500 \$ 8,300 \$ 9,700

Sales for the second quarter of 2017 are \$43,000, cost of goods sold under the FIFO method is \$11,300, and operating expenses are \$5,700. 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.

 Three Months Ended June 30 Six Months Ended June 30 2016 2017 2016 2017 Net income Net income per common share

change in the method of inventory valution requires retrospective application

three months ended june 30

 2016 2017 sales 35000 43000 cost of goods sold (FIFO) 6900 11300 operating expenses 4500 5700 income before taxes 23600 26000 income taxes (40%) 9440 10400 net income 14160 15600 net income per common share (net income/commonstock outstanding) 14.16 15.6

six months ended june 30

 2016 2017 sales 68000 84000 cost of goods sold (FIFO) 13000 21000 operating expences 8800 11200 operating befor taxes 46200 51800 taxes (40 % ) 18480 20720 net income 27720 31080 net income per common share 27.72 31.08

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