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ABC began doing business on January 1, Y1 using the LIFO inventory method. During Y4, ABC changed to the FIFO inventory method.

ABC began doing business on January 1, Y1 using the LIFO inventory method. During Y4, ABC changed to the FIFO inventory method. The inventory at the end of each year using FIFO and purchases made during the Y1, Y2, Y3 and Y4 fiscal years are as follows: 


Inventory at end of year using LIFO inventory method Net Purchases during the year Inventory at end of year using FIFO inventory method

Y1 $50 $1,200 $60

Y2 $125 $1,300 $90

Y3 $200 $1,750 $160

Y4 $275 $2,500 $210


The Y3 Financial Statements were presented with the Y4 Financial Statements for comparison purposes. Assume that ABC's tax rate for all years is 40%. Prepare the retrospective adjustment that would be shown on the Statement of Retained Earnings for Y3 presented with the Y4 Financial Statements.

($35)

$10

($21)

($15)


I am having a hard time remembering how to do the retrospective adjustment and the way this is worded is confusing me even more. Could someone please help me understand how to go about solving this? I feel like I'm missing something important.

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