Problem - Presented below are income statements prepared on a LIFO and FIFO basis for Sage Company, which started operations on January 1, 2016. The company presently uses the LIFO method of pricing its inventory and has decided to switch to the FIFO method in 2017. The FIFO income statement is computed in accordance with the requirements of GAAP. Sage's profit-sharing agreement with its employees indicates that the company will pay employees 10% of income before profit-sharing. Income taxes are ignored.
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LIFO Basis
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FIFO Basis
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2017
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2016
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2017
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2016
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Sales
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$3,090
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$3,090
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$3,090
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$3,090
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|
Cost of goods sold
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1,150
|
1,030
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1,080
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930
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|
Operating expenses
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1,000
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1,000
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1,000
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1,000
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Income before profit-sharing
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940
|
1,060
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1,010
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1,160
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Profit-sharing expense
|
94
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106
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111
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106
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Net income
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$846
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$954
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$899
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$1,054
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Answer the following questions.
1. If comparative income statements are prepared, what net income should Sage report in 2016 and 2017?
2. Assume that Sage has a beginning balance of retained earnings at January 1, 2017, of $954 using the LIFO method. The company declared and paid dividends of $520 in 2017. Prepare the retained earnings statement for 2017, assuming that Sage has switched to the FIFO method.