Aquatic Equipment Corporation decided to switch from the LIFO method of costing inventories to the FIFO method at the beginning of 2024. The inventory as reported at the end of 2023 using LIFO would have been $56,000 higher using FIFO. Retained earnings at the end of 2023 was reported as $740,000 (reflecting the LIFO method). The tax rate is 35%. Required: 1. Calculate the balance in retained earnings at the time of the change (beginning of 2024) as it would have been reported if FIFO had been used in prior years. 2. Prepare the journal entry at the beginning of 2024 to record the change in accounting principle. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare the journal entry at the beginning of 2024 to record the change in accounting principle. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.

Aquatic Equipment Corporation decided to switch from the LIFO method of costing inventories to the FIFO method at the beginning of 2024. The inventory as reported at the end of 2023 using LIFO would have been $56,000 higher using FIFO. Retained earnings at the end of 2023 was reported as $740,000 (reflecting the LIFO method). The tax rate is 35%. Required: 1. Calculate the balance in retained earnings at the time of the change (beginning of 2024) as it would have been reported if FIFO had been used in prior years. 2. Prepare the journal entry at the beginning of 2024 to record the change in accounting principle. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare the journal entry at the beginning of 2024 to record the change in accounting principle. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter22: Accounting For Changes And Errors.

Section: Chapter Questions

Problem 8E: In 2020, Frost Company, which began operations in 2018, decided to change from LIFO to FIFO because...

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Fava Company began operations in 2018 and used the LIFO inventory method for both financial reporting and income taxes. At the beginning of 2019, the anticipated cost trends in the industry had changed, so that it adopted the FIFO method for both financial reporting and income taxes. Fava reported revenues of 300,000 and 270,000 in 2019 and 2018, respectively. Fava reported expenses (excluding income tax expense) of 125,000 and 120,000 in 2019 and 2018, which included cost of goods sold of 55,000 and 45,000, respectively. An analysis indicates that the FIFO cost of goods sold would have been lower by 8,000 in 2018. The tax rate is 21%. Fava has a simple capital structure with 15,000 shares of common stock outstanding during 2018 and 2019. It paid no dividends in either year. Required: 1. Prepare the journal entry to reflect the change. 2. At the end of 2019, prepare the comparative income statements for 2019 and 2018. Notes to the financial statements are not necessary. 3. At the end of 2019, prepare the comparative retained earnings statements for 2019 and 2018.
In 2020, Frost Company, which began operations in 2018, decided to change from LIFO to FIFO because management believed that FIFO belter represented the flow of their inventory. Management prepared the following analysis showing the effect of this change: Frost reported net income of 2,500,000, 2,400,000, and 2,100,000 in 2018, 2019, and 2020, respectively. The tax rate is 21%. Required: 1. Prepare the journal entry necessary to record the change. 2. What amount of net income would Frost report in 2018, 2019, and 2020? 3. If Frosts employees received a bonus of 10% of income before deducting the bonus and income taxes in 2018 and 2019, what would be the effect on net income for 2018, 2019, and 2020?
Schmidt Company began operations on January 1, 2018, and used the LIFO inventory method for both financial reporting and income taxes. However, at the beginning of 2020, Schmidt decided to switch to the average cost inventory method for financial and income tax reporting. It had previously reported the following financial statement information for 2019: An analysis of the accounting records discloses the following cost of goods sold under the LIFO and average cost inventory methods: There are no indirect effects of the change in inventory method. Revenues for 2020 total 130,000; operating expenses for 2020 total 30,000. Schmidt is subject to a 21% income tax rate in all years; it pays all income taxes payable in the next quarter. Assume that any deferred tax liability was paid in the subsequent year. Schmidt had 10,000 shares of common stock outstanding during all years; it paid dividends of 1 per share in 2020. At the end of 2020, Schmidt had cash of 15,600, inventory of 34,000, other assets of 76,000, income taxes payable of 4,200, and accounts payable of 3,000. It desires to show financial statements for the current year and previous year in its 2020 annual report. Required: 1. Prepare the journal entry to reflect the change in method at the beginning of 2020. Show supporting calculations. 2. Prepare the 2020 financial statements. Notes to the financial statements are not necessary. Show supporting calculations.
Berg Company began operations on January 1, 2019, and uses the FIFO method in costing its raw materials inventory. During 2020, management is contemplating a change to the LIFO method and is interested in determining what effect such a change will have on net income. Accordingly, the following information has been developed: Required: What is the effect on income before income taxes in 2020 of a change to the LIFO method?
Koopman Company began operations on January 1, 2018, and uses they FIFO inventory method for financial reporting and the average cost inventory method for income taxes. At the beginning of 2020, Koopman decided to switch to the average cost inventory method for financial reporting. It had previously reported the following financial statement information for 2019: An analysis of the accounting records discloses the following cost of goods sold under the FIFO and average cost inventory methods: There are no indirect effects of the change in inventory method. Revenues for 2020 total 130,000; operating expenses for 2020 total 30,000. Koopman is subject to a 21% income tax rate in all years; it pays the income taxes payable of a current year in the first quarter of the next year. Koopman had 10,000 shares of common stock outstanding during all years; it paid dividends of 1 per share in 2020. At the end of 2020, Koopman had cash of 10,000, inventory of 24,000, other assets of 70,800, accounts payable of 4,500, and income taxes payable of 6,000. It desires to show financial statements for the current year and previous year in its 2020 annual report. Required: 1. Prepare the journal entry to reflect the change in methods at the beginning of 2020. Show supporting calculations. 2. Prepare the 2020 financial statements. Notes to the financial statements are not necessary. Show supporting calculations.
Refer to RE22-2. Assume Heller Company had sales revenue of 510,000 in 2019 and 650,000 in 2020. Prepare Hellers partial income statements (through gross profit) for 2019 and 2020. RE22-2 Heller Company began operations in 2019 and used the LIFO method to compute its 300,000 cost of goods sold for that year. At the beginning of 2020, Heller changed to the FIFO method. Heller determined that its cost of goods sold under FIFO would have been 250,000 in 2019. For 2020, Hellers cost of goods sold under FIFO was 360,000, while it would have been 410,000 under LIFO. Heller is subject to a 21% income tax rate. Compute the cumulative effect of the retrospective adjustment on prior years income (net of taxes) that Heller would report on its retained earnings statement for 2020.
Moore Company uses the LIFO cost flow assumption and carries Product A in inventory on December 31, 2019, at its unit cost of 9.50. Because of a sharp decline in demand for the product, the selling price was reduced to 10.00 per unit. Moores normal profit margin on Product A is 2.00, disposal costs are 1.00 per unit, and the replacement cost is 6.50. Under the lower of cost or market rule, Moores December 31, 2019, inventory of Product A should be valued at a unit cost of: a. 6.50 b. 9.00 c. 7.00 d. 9.50
Company Elmira reported the following cost of goods sold but later realized that an error had been made in ending inventory for year 2021. The correct inventory amount for 2021 was 32,000. Once the error is corrected, (a) how much is the restated cost of goods sold for 2021? and (b) how much is the restated cost of goods sold for 2022?
Refer to the information provided in RE8-4. If Paul Corporations inventory at January 1, 2019, had a cost and net realizable value of 300,000, prepare the journal entry to record the reductions to NRV for Paul Corporation assuming that Paul uses a periodic inventory system and the direct method. Paul Corporation uses FIFO and reports the following inventory information: Assuming Paul uses a perpetual inventory system and the direct method, prepare the journal entry to record the write-down of inventory.
Aquatic Equipment Corporation decided to switch from the LIFO method of costing inventories to the FIFO method at the beginning of 2021. The inventory as reported at the end of 2020 using LIFO would have been $69,000 higher using FIFO. Retained earnings at the end of 2020 was reported as $870,000 (reflecting the LIFO method). The tax rate is 40%. Required: 1. Calculate the balance in retained earnings at the time of the change (beginning of 2021) as it would have been reported if FIFO had been used in prior years. 2. Prepare the journal entry at the beginning of 2021 to record the change in accounting principle.
Aquatic Equipment Corporation decided to switch from the LIFO method of costing inventories to the FIFO method at the beginning 2021. The inventory as reported at the end of 2020 using LIFO would have been $66.000 higher using FIFO. Retained earnings at th end of 2020 was reported as $840,000 (reflecting the LIFO method). The tax rate is 40%. Required: 1. Calculate the balance in retained earnings at the time of the change (beginning of 2021) as it would have been reported if FIFO had been used in prior years. 2. Prepare the journal entry at the beginning of 2021 to record the change in accounting principle. Complete this question by entering your answers in the tabs below.
On December 31, 2021, Hindi Khough Alam Corporation appropriately changed its inventory costing method from FIFO cost to weighted average cost method for financial statement and income tax purposes. The change will result in a P700,000 decrease in the beginning inventory of January 1, 2021. Assume a 30% income tax rate. What is the amount of addition (deduction) to the January 1, 2021 balance of retained earnings?