E22-5B (Accounting Changes) Presented below are income statement prepared on a FIFO and LIFO basis for Marvel Inc. (Prior to 2013, there were no differences due to LIFO and FIFO.) The company presently uses the LIFO method of pricing its inventory and has

E22-5B (Accounting Changes) Presented below are income statement prepared on a FIFO and LIFO basis for Marvel Inc. (Prior to 2013, there were no differences due to LIFO and FIFO.) The company presently uses the LIFO method of pricing its inventory and has decided to switch to FIFO method in 2014. The LIFO income statement is computed in accordance with GAAP requirements. Income taxes are ignored.
                                                                              LIFO Basis                                  FIFO Basis    
                                                                  2013                 2014                      2013              2014     
Sales                                                         $10,000          $10,000                 $10,000          $10,000
Cost of goods sold                                       6,000              6,300                    5,500               5,600
Operating expenses                                       1,500              1,500                    1,500              1,500
Income before profit sharing                        2,500              2,200                     3,000              2,900
Profit sharing expenses                                   500                 440                        500                 680
Net income                                                $ 2,000            $ 1,760                  $ 2,500          $ 2,220
Instructions
(a) If comparative income statements are prepared, what net income should Marvel report in 2013 and 2014?
(b) Marvel’s profit-sharing agreement with its top management requires a contribution of 20% of income before profit sharing. Explain why, under the FIFO basis, Marvel reports $500 in 2013 and $580 in 2014 for its profit-sharing expense.
(c) Assume that Marvel has a beginning balance of retained earnings at January 1, 2014, of $25,000 using the LIFO method. The company declared and paid dividends of $1,000 in 2014. Prepare the retained earnings statement for 2014, assuming that Marvel has switched to the FIFO
method.