### Inventory and Income Statement Analysis**Inventory Calculation:**- **Beginning Inventory (FIFO, 5,000 units @ $28):** $140,000- **Purchases:** - 5,000 units @ $34: $170,000 - 5,000 units @ $38: $190,000 - **Total Purchases:** $360,000- **Cost of Goods Available for Sale:** $500,000- **Sales for 2021 (6,000 units @ $74):** $444,000**Additional Information:**a. The company's effective income tax rate is 25% for all years.b. If the average cost method had been used prior to 2021, ending inventory for 2020 would have been $120,000.c. 9,000 units remained in inventory at the end of 2021.**Required:**1. Ignoring income taxes, prepare the 2021 journal entry to adjust the accounts to reflect the average cost method.2. Determine the effect of the change in methods on 2021 net income.**Analysis:**- **Effect on 2021 Net Income:** - The change results in an **increase** in the cost of goods sold, leading to a **decrease** in income before taxes and a **decrease** in income after tax.

Accounts title Debit Credit Retained earnings (WN A) 20,000 Merchandise inventory 20,000…

c. 9,000 units remained in inventory at the end of 2021. Required: 1. Ignoring income taxes, prepare the 2021 journal entry to adjust the accounts to reflect the average cost method. 2. What is the effect of the change in methods on 2021 net income? Complete this question by entering your answers in the tabs below.

c. 9,000 units remained in inventory at the end of 2021. Required: 1. Ignoring income taxes, prepare the 2021 journal entry to adjust the accounts to reflect the average cost method. 2. What is the effect of the change in methods on 2021 net income? Complete this question by entering your answers in the tabs below.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Mm.20. Subject :- Account
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