During 2019 (its first year of operations) and 2020, Fieri Foods used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2021, Fieri decided to change to the average method for both financial reporting and tax purposes. Income components before income tax for 2019, 2020, and 2021 were as follows: ($ in millions) 2019 2020 2021 Revenues $ 540 $ 550 $ 580 Cost of goods sold (FIFO) (54) (56) (62) Cost of goods sold (average) (84) (88) (94) Operating expenses (306) (314) (318) Dividends of $20 million were paid each year. Fieri’s fiscal year ends December 31. Required: 1. Prepare the journal entry at the beginning of 2021 to record the change in accounting principle. (Ignore income taxes.) 2. Prepare the 2021–2020 comparative income statements. 3. & 4. Determine the balance in retained earnings at January 1, 2020 as Fieri reported using FIFO method and determine the adjustment of balance in retained earnings as on January 1, 2020 using average method instead of FIFO method. Req 1 Prepare the journal entry at the beginning of 2021 to record the change in accounting principle. (Ignore income taxes.) (If no entry is required for a transaction/event, select “No journal entry required” in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10) Journal entry worksheet Record the change in accounting principle. Req 2 Prepare the 2021-2020 comparative income statements. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).) COMPARATIVE INCOME STATEMENTS 2021 2020 ($ in millions) Revenues _____ _____ Cost of goods sold ______ ______ Operating expenses _______ ______ Net income _______ ______ Req 3 and 4 Determine the balance in retained earnings at January 1, 2020 as Fieri reported using FIFO method and determine the adjustment of balance in retained earnings as on January 1, 2020 using average method instead of FIFO method. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).) ($ in millions) Retained earnings balance previously reported using FIFO, Jan 1, 2020 ______________ Adjustment to balance for change in inventory methods _________________ Retained earnings balance using average method, Jan 1, 2020 _________________
During 2019 (its first year of operations) and 2020, Fieri Foods used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2021, Fieri decided to change to the average method for both financial reporting and tax purposes.
Income components before income tax for 2019, 2020, and 2021 were as follows:
($ in millions) 2019 2020 2021
Revenues $ 540 $ 550 $ 580
Cost of goods sold (FIFO) (54) (56) (62)
Cost of goods sold (average) (84) (88) (94)
Operating expenses (306) (314) (318)
Dividends of $20 million were paid each year. Fieri’s fiscal year ends December 31.
Required:
1. Prepare the
2. Prepare the 2021–2020 comparative income statements.
3. & 4. Determine the balance in
Req 1
Prepare the journal entry at the beginning of 2021 to record the change in accounting principle. (Ignore income taxes.) (If no entry is required for a transaction/event, select “No journal entry required” in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10)
Journal entry worksheet
- Record the change in accounting principle.
Req 2
Prepare the 2021-2020 comparative income statements. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)
COMPARATIVE INCOME STATEMENTS
2021 2020
($ in millions)
Revenues _____ _____
Cost of goods sold ______ ______
Operating expenses _______ ______
Net income _______ ______
Req 3 and 4
Determine the balance in retained earnings at January 1, 2020 as Fieri reported using FIFO method and determine the adjustment of balance in retained earnings as on January 1, 2020 using average method instead of FIFO method. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)
($ in millions)
Retained earnings balance previously reported using FIFO, Jan 1, 2020 ______________
Adjustment to balance for change in inventory methods _________________
Retained earnings balance using average method, Jan 1, 2020 _________________
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