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Question - Presented below are income statements prepared on a LIFO and FIFO basis for Sweet 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. Sweet's profit-sharing agreement with its employees indicates that the company will pay employees 10% of income before profit-sharing. Income taxes are ignored.
LIFO Basis
FIFO Basis
2017
2016
Sales
$2,970
Cost of goods sold
1,120
970
1,060
920
Operating expenses
Income before profit-sharing
880
1,030
940
1,080
Profit-sharing expense
88
103
99
Net income
$792
$927
$841
$977
Answer the following questions.
1. If comparative income statements are prepared, what net income should Sweet report in 2016 and 2017?
2. Assume that Sweet has a beginning balance of retained earnings at January 1, 2017, of $927 using the LIFO method. The company declared and paid dividends of $530 in 2017. Prepare the retained earnings statement for 2017, assuming that Sweet has switched to the FIFO method.
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