Flay Foods has always used the FIFO Inventory costing method for both financial reporting and tax purposes. At the beginning of 2021, Flay decided to change to the LIFO method. As a result of the change, net income in 2021 was $78 million. If the company had used LIFO in 2020, Its cost of goods sold would have been higher by $5 million that year. Flay's records of Inventory purchases and sales are not available for 2019 and several previous years. Last year, Flay reported the following net income amounts in its comparative Income statements: ($ in millions) Net income 2018 2019 $78 $80 2020 $82 Required: 1. Prepare the journal entry at the beginning of 2021 to record the change in accounting principle. (Ignore Income taxes.) 3. What amounts will Flay report for net Income In Its 2019-2021 comparative Income statements?

Flay Foods has always used the FIFO Inventory costing method for both financial reporting and tax purposes. At the beginning of 2021, Flay decided to change to the LIFO method. As a result of the change, net income in 2021 was $78 million. If the company had used LIFO in 2020, Its cost of goods sold would have been higher by $5 million that year. Flay's records of Inventory purchases and sales are not available for 2019 and several previous years. Last year, Flay reported the following net income amounts in its comparative Income statements: ($ in millions) Net income 2018 2019 $78 $80 2020 $82 Required: 1. Prepare the journal entry at the beginning of 2021 to record the change in accounting principle. (Ignore Income taxes.) 3. What amounts will Flay report for net Income In Its 2019-2021 comparative Income statements?

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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Aquatic Equipment Corporation decided to switch from the LIFO method of costing inventories to the FIFO method at the beginning of 2021. The inventory as reported at the end of 2020 using LIFO would have been $69,000 higher using FIFO. Retained earnings at the end of 2020 was reported as $870,000 (reflecting the LIFO method). The tax rate is 40%. Required: 1. Calculate the balance in retained earnings at the time of the change (beginning of 2021) as it would have been reported if FIFO had been used in prior years. 2. Prepare the journal entry at the beginning of 2021 to record the change in accounting principle.
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In 2024, the Barton and Barton Company changed its method of valuing inventory from the FIFO method to the average cost method. At December 31, 2023, B & B’s inventories were $32.2 million (FIFO). B & B’s records indicated that the inventories would have totaled $23.9 million at December 31, 2023, if determined on an average cost basis. Ignoring income taxes, what journal entry will B & B use to record the adjustment in 2024? Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).
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