Exercise 20-1 (Algo) Change in principle; change in inventory methods (LO20-2] 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 Cost of goods sold (FIFO) Cost of goods sold (average) Operating expenses $ 510 (51) (78) (294) $ 520 (53) (82) (302) $ 550 (59) (88) (306) Dividends of $32 million were paid each year. Fieri's fiscal year ends December 31. Required: 1. Prepare the journal entry at the beginning of 2021 to record the change in accounting principle. (Ignore income taxes.) 2. Prepare the 2021–2020 comparative income statements. 3. & 4. Determine the balance in retained earnings at January 1, 2020 as Fieri reported using FIFO method and determine the adjustment of balance in retained earnings as on January 1, 2020 using average method instead of FIFO method.
Exercise 20-1 (Algo) Change in principle; change in inventory methods (LO20-2] During 2019 (its first year of operations) and 2020, Fieri Foods used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2021, Fieri decided to change to the average method for both financial reporting and tax purposes. Income components before income tax for 2019, 2020, and 2021 were as follows: ($ in millions) 2019 2020 2021 Revenues Cost of goods sold (FIFO) Cost of goods sold (average) Operating expenses $ 510 (51) (78) (294) $ 520 (53) (82) (302) $ 550 (59) (88) (306) Dividends of $32 million were paid each year. Fieri's fiscal year ends December 31. Required: 1. Prepare the journal entry at the beginning of 2021 to record the change in accounting principle. (Ignore income taxes.) 2. Prepare the 2021–2020 comparative income statements. 3. & 4. Determine the balance in retained earnings at January 1, 2020 as Fieri reported using FIFO method and determine the adjustment of balance in retained earnings as on January 1, 2020 using average method instead of FIFO method.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Exercise 20-1 (Algo) Change in principle; change in inventory methods (LO20-2]
During 2019 (its first year of operations) and 2020, Fieri Foods used the FIFO inventory costing method for both financial reporting and
tax purposes. At the beginning of 2021, Fieri decided to change to the average method for both financial reporting and tax purposes.
Income components before income tax for 2019, 2020, and 2021 were as follows:
($ in millions)
2019
2020
2021
Revenues
Cost of goods sold (FIFO)
Cost of goods sold (average)
Operating expenses
$ 510
(51)
(78)
(294)
$ 520
(53)
(82)
(302)
$ 550
(59)
(88)
(306)
Dividends of $32 million were paid each year. Fieri's fiscal year ends December 31.
Required:
1. Prepare the journal entry at the beginning of 2021 to record the change in accounting principle. (Ignore income taxes.)
2. Prepare the 2021–2020 comparative income statements.
3. & 4. Determine the balance in retained earnings at January 1, 2020 as Fieri reported using FIFO method and determine the
adjustment of balance in retained earnings as on January 1, 2020 using average method instead of FIFO method.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0a827890-2915-4a1d-bd3a-77e5b8a42c8a%2F83de6acc-a97e-42b5-9d19-87bde2af2d89%2Fwc26nco_processed.png&w=3840&q=75)
Transcribed Image Text:Exercise 20-1 (Algo) Change in principle; change in inventory methods (LO20-2]
During 2019 (its first year of operations) and 2020, Fieri Foods used the FIFO inventory costing method for both financial reporting and
tax purposes. At the beginning of 2021, Fieri decided to change to the average method for both financial reporting and tax purposes.
Income components before income tax for 2019, 2020, and 2021 were as follows:
($ in millions)
2019
2020
2021
Revenues
Cost of goods sold (FIFO)
Cost of goods sold (average)
Operating expenses
$ 510
(51)
(78)
(294)
$ 520
(53)
(82)
(302)
$ 550
(59)
(88)
(306)
Dividends of $32 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.
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