Question

The Pyramid Company has used the LIFO method of accounting for inventory during its first two years of operation, 2014 and 2015. At the beginning of 2016, Pyramid decided to change to the average cost method for both tax and financial reporting purposes. The following table presents information concerning the change for 2014–2016. The income tax rate for all years is 40%.

Pyramid issued 59,000 $1 par, common shares for $255,000 when the business began, and there have been no changes in paid-in capital since then. Dividends were not paid the first year, but $12,000 cash dividends were paid in both 2015 and 2016.

Prepare the 2016–2015 comparative income statements beginning with income before income taxes.(Round EPS answers to 2 decimal places.)

Prepare the 2016–2015 comparative statements of shareholders’ equity. (Hint: The 2014 statements reported retained earnings of $37,200. This is $62,000 – [$62,000 × 40%]).

The Pyramid Company has used the LIFO method of accounting for inventory during its first two years of operation, 2014 and 2015. At the beginning of 2016, Pyramid decided to change to the average cost method for both tax and financial reporting purposes. The following table presents information concerning the change for 2014–2016. The income tax rate for all years is 40%.