During 2022 (its first year of operations) and 2023, Fieri Foods used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2024, Fieri decided to change to the average method for both financial reporting and tax purposes. Income components before income tax for 2022, 2023, and 2024 were as follows: ($ in millions) 2022 2023 2024 Revenues $ 430 $ 440 $ 470 Cost of goods sold (FIFO) (43) (45) (51) Cost of goods sold (average) (62) (66) (72) Operating expenses (262) (270) (274) Dividends of $24 million were paid each year. Fieri’s fiscal year ends December 31. Questions 1 & 2 Determine the balance in retained earnings at January 1, 2023, as Fieri reported using FIFO method and determine the adjustment of balance in retained earnings as on January 1, 2023 using average method instead of FIFO method.

During 2022 (its first year of operations) and 2023, Fieri Foods used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2024, Fieri decided to change to the average method for both financial reporting and tax purposes. Income components before income tax for 2022, 2023, and 2024 were as follows: ($ in millions) 2022 2023 2024 Revenues $ 430 $ 440 $ 470 Cost of goods sold (FIFO) (43) (45) (51) Cost of goods sold (average) (62) (66) (72) Operating expenses (262) (270) (274) Dividends of $24 million were paid each year. Fieri’s fiscal year ends December 31. Questions 1 & 2 Determine the balance in retained earnings at January 1, 2023, as Fieri reported using FIFO method and determine the adjustment of balance in retained earnings as on January 1, 2023 using average method instead of FIFO method.

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 5E: Fava Company began operations in 2018 and used the LIFO inventory method for both financial...

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($ in millions)	2022	2023	2024
Revenues	$ 430	$ 440	$ 470
Cost of goods sold (FIFO)	(43)	(45)	(51)
Cost of goods sold (average)	(62)	(66)	(72)
Operating expenses	(262)	(270)	(274)

Questions

1 & 2 Determine the balance in retained earnings at January 1, 2023, as Fieri reported using FIFO method and determine the adjustment of balance in retained earnings as on January 1, 2023 using average method instead of FIFO method.

Definition Definition Remaining net income of the company after the required dividends are paid to shareholders. This surplus money is usually invested back into the business to expand its business operations or launch a new product.

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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.
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