Fantasy Fashions had used the LIFO method of costing inventories, but at the beginning of 2024 decided to change to the FIFO method. The inventory as reported at the end of 2023 using LIFO would have been $30 million higher using FIFO. Retained earnings reported at the end of 2022 and 2023 was $250 million and $270 million, respectively (reflecting the LIFO method). Those amounts reflecting the FIFO method would have been $260 million and $282 million, respectively. 2023 net income reported at the end of 2023 was $38 million (LIFO method) but would have been $40 million using FIFO. After changing to FIFO, 2024 net income was $46 million. Dividends of $9 million were paid each year. The tax rate is 25%. Required: 1. Prepare the journal entry at the beginning of 2024 to record the change in accounting principle. 2. In the 2024-2023 comparative Income statements, what will be the amounts of net Income reported for 2023 and 2024? 3. Prepare the 2024-2023 retained earnings column of the comparative statements of shareholders' equity.
Fantasy Fashions had used the LIFO method of costing inventories, but at the beginning of 2024 decided to change to the FIFO method. The inventory as reported at the end of 2023 using LIFO would have been $30 million higher using FIFO. Retained earnings reported at the end of 2022 and 2023 was $250 million and $270 million, respectively (reflecting the LIFO method). Those amounts reflecting the FIFO method would have been $260 million and $282 million, respectively. 2023 net income reported at the end of 2023 was $38 million (LIFO method) but would have been $40 million using FIFO. After changing to FIFO, 2024 net income was $46 million. Dividends of $9 million were paid each year. The tax rate is 25%. Required: 1. Prepare the journal entry at the beginning of 2024 to record the change in accounting principle. 2. In the 2024-2023 comparative Income statements, what will be the amounts of net Income reported for 2023 and 2024? 3. Prepare the 2024-2023 retained earnings column of the comparative statements of shareholders' equity.
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...
Related questions
Question
Please Do not Give image format
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College