ABC Company decides at the beginning of 2021 to adopt the FIFO method of inventory valuation. ABC had used the LIFO method for financial reporting since its inception on January 1, 2021, and had maintained records adequate to apply the FIFO method retrospectively. ABC concluded that FIFO is the preferable inventory method because it reflects the current cost of inventory on the balance sheet. The following table presents the effects of the change in accounting principles on inventory and cost of goods sold. Cost of Goods Sold Determined by Inventory Determined by LIFO Date 1/1/2021 12/31/2021 12/31/2022 12/31/2023 FIFO FIFO LIFO $0 $0 $0 $0 820 800 80 100 940 1,000 240 200 1,100 1,130 390 320 Other information: • For each year presented, sales are $3,000 and operating expenses are $1,000. ABC provides two years of financial statements. Earnings per share information is not required. Required: a. Prepare income statements reflecting the retrospective application of the accounting change from the LIFO method to the FIFO method for 2022 and 2023. b. Prepare comparative retained earnings statements for 2022 and 2023 under FIFO. Retained earnings reported under LIFO are as follows: Retained Earnings Balance 31-Dec-2021 31-Dec-2022 31-Dec-2023 $1,200 2,200 3,070
ABC Company decides at the beginning of 2021 to adopt the FIFO method of inventory valuation. ABC had used the LIFO method for financial reporting since its inception on January 1, 2021, and had maintained records adequate to apply the FIFO method retrospectively. ABC concluded that FIFO is the preferable inventory method because it reflects the current cost of inventory on the balance sheet. The following table presents the effects of the change in accounting principles on inventory and cost of goods sold. Cost of Goods Sold Determined by Inventory Determined by LIFO Date 1/1/2021 12/31/2021 12/31/2022 12/31/2023 FIFO FIFO LIFO $0 $0 $0 $0 820 800 80 100 940 1,000 240 200 1,100 1,130 390 320 Other information: • For each year presented, sales are $3,000 and operating expenses are $1,000. ABC provides two years of financial statements. Earnings per share information is not required. Required: a. Prepare income statements reflecting the retrospective application of the accounting change from the LIFO method to the FIFO method for 2022 and 2023. b. Prepare comparative retained earnings statements for 2022 and 2023 under FIFO. Retained earnings reported under LIFO are as follows: Retained Earnings Balance 31-Dec-2021 31-Dec-2022 31-Dec-2023 $1,200 2,200 3,070
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:ABC Company decides at the beginning of 2021 to adopt the FIFO method of inventory valuation. ABC had used the LIFO method for financial reporting since its inception on January 1, 2021, and had
maintained records adequate to apply the FIFO method retrospectively. ABC concluded that FIFO is the preferable inventory method because it reflects the current cost of inventory on the balance sheet.
The following table presents the effects of the change in accounting principles on inventory and cost of goods sold.
Cost of Goods Sold Determined by
|Inventory Determined by
Date
FIFO
LIFO
FIFO
LIFO
1/1/2021
$0
$0
$0
$0
12/31/2021
820
800
80
100
12/31/2022
12/31/2023
940
1,000
240
200
1,100
1,130
390
320
Other information:
• For each year presented, sales are $3,000 and operating expenses are $1,000.
• ABC provides two years of financial statements.
• Earnings per share information is not required.
Required:
a. Prepare income statements reflecting the retrospective application of the accounting change from the LIFO method to the FIFO method for 2022 and 2023.
b. Prepare comparative retained earnings statements for 2022 and 2023 under FIFO. Retained earnings reported under LIFO are as follows:
Retained Earnings Balance
31-Dec-2021
$1,200
31-Dec-2022
2,200
31-Dec-2023
3,070
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