The management of Utrillo Instrument Company had concluded, with the concurrence of its independent auditors, that results of operations would be more
The management of Utrillo Instrument Company had concluded, with the concurrence of its independent auditors, that results of operations would be more fairly presented if Utrillo changed its method of pricing inventory from last-in, first-out (LIFO) to averagecost in 2014. 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.
\r\nUTRILLO INSTRUMENT COMPANY
\r\nSTATEMENT OF INCOME AND RETAINED EARNINGS
\r\nFOR THE YEARS ENDED MAY 31
\r\n2010 2011 2012 2013 2014
\r\nSales—net $13,964 $15,506 $16,673 $18,221 $18,898
\r\nCost of goods sold
\r\nBeginning inventory 1,000 1,100 1,000 1,115 1,237
\r\nPurchases 13,000 13,900 15,000 15,900 17,100
\r\nEnding inventory (1,100) (1,000) (1,115) (1,237) (1,369)
\r\nTotal 12,900 14,000 14,885 15,778 16,968
\r\nGross profi t 1,064 1,506 1,788 2,443 1,930
\r\nAdministrative expenses 700 763 832 907 989
\r\nIncome before taxes 364 743 956 1,536 941
\r\nIncome taxes (50%) 182 372 478 768 471
\r\nNet income 182 371 478 768 470
\r\nRetained earnings—beginning 1,206 1,388 1,759 2,237 3,005
\r\nRetained earnings—ending $ 1,388 $ 1,759 $ 2,237 $ 3,005 $ 3,475
\r\nEarnings per share $1.82 $3.71 $4.78 $7.68 $4.70
\r\nSCHEDULE OF INVENTORY BALANCES USING AVERAGE-COST METHOD
\r\nFOR THE YEARS ENDED MAY 31
\r\n2009 2010 2011 2012 2013 2014 $1,010 $1,124 $1,101 $1,270 $1,500 $1,720
\r\nInstructions
\r\nPrepare comparative statements for the 5 years, assuming that Utrillo changed its method of inventory pricing to average-cost. Indicate the effects on net income and earnings per share for the years involved.
\r\nUtrillo Instruments started business in 2009. (All amounts except EPS are rounded up to the nearest dollar.)