In 20X2, ABBA Fabrics, Inc., elected to change its method of valuing inventory to the weighted average cost (“WAC”) method, whereas in all prior years inventory was valued using the last-in, first-out (LIFO) method. The company determined that the WAC method of accounting for inventory is preferable as the method better reflects ABBA’s inventory at current costs and enhances the comparability of its financial statements by changing to the predominant method utilized in its industry. Condensed financial statements for 20X2 (using WAC) and 20X1 (as originally reported) appear below. Inventory as originally reported at December 31, 20X1 ($77,907), and December 31, 20X0 ($127,574), increases by $36,382 and $37,432, respectively under WAC. Ignore income taxes. ABBA Fabrics, Inc., Balance Sheets December 31, (in thousands) 20X2 (Under WAC) 20X1 (Under LIFO) Current assets: Cash and cash equivalents $ 2,338 $ 2,280 Receivables, less allowance for doubtful accounts 3,380 4,453 Inventories, net 104,156 77,907 Other current assets 1,735 9,866 Total current assets 111,609 94,506 Long-term assets 53,065 56,438 Total assets 164,674 150,944 Total liabilities 117,325 123,888 Common stock 88,348 75,650 Retained earnings 124,907 100,953 Treasury stock (153,684 ) (153,622 ) Accumulated other comprehensive income (12,222 ) 4,075 Total liabilities and shareholders’ equity $ 164,674 $ 150,944 ABBA Fabrics, Inc., Statements of Operations Years Ended December 31, (in thousands) 20X2 (Under WAC) 20X1 (Under LIFO) Sales $ 276,381 $ 276,247 Cost of goods sold (156,802 ) (157,617 ) Gross profit 119,579 118,630 Selling, general, and administrative expenses (112,106 ) (117,815 ) Depreciation and amortization (4,409 ) (3,815 ) Operating income (loss) $ 3,064 $ (3,000 ) Required: 1-A. Restate the 20X1 balance sheet as it should appear for comparative purposes in the 20X2 annual report. 1-B. Restate the 20X1 statement of operations as it should appear for comparative purposes in the 20X2 annual report.

In 20X2, ABBA Fabrics, Inc., elected to change its method of valuing inventory to the weighted average cost (“WAC”) method, whereas in all prior years inventory was valued using the last-in, first-out (LIFO) method. The company determined that the WAC method of accounting for inventory is preferable as the method better reflects ABBA’s inventory at current costs and enhances the comparability of its financial statements by changing to the predominant method utilized in its industry. Condensed financial statements for 20X2 (using WAC) and 20X1 (as originally reported) appear below. Inventory as originally reported at December 31, 20X1 ($77,907), and December 31, 20X0 ($127,574), increases by $36,382 and $37,432, respectively under WAC. Ignore income taxes. ABBA Fabrics, Inc., Balance Sheets December 31, (in thousands) 20X2 (Under WAC) 20X1 (Under LIFO) Current assets: Cash and cash equivalents $ 2,338 $ 2,280 Receivables, less allowance for doubtful accounts 3,380 4,453 Inventories, net 104,156 77,907 Other current assets 1,735 9,866 Total current assets 111,609 94,506 Long-term assets 53,065 56,438 Total assets 164,674 150,944 Total liabilities 117,325 123,888 Common stock 88,348 75,650 Retained earnings 124,907 100,953 Treasury stock (153,684 ) (153,622 ) Accumulated other comprehensive income (12,222 ) 4,075 Total liabilities and shareholders’ equity $ 164,674 $ 150,944 ABBA Fabrics, Inc., Statements of Operations Years Ended December 31, (in thousands) 20X2 (Under WAC) 20X1 (Under LIFO) Sales $ 276,381 $ 276,247 Cost of goods sold (156,802 ) (157,617 ) Gross profit 119,579 118,630 Selling, general, and administrative expenses (112,106 ) (117,815 ) Depreciation and amortization (4,409 ) (3,815 ) Operating income (loss) $ 3,064 $ (3,000 ) Required: 1-A. Restate the 20X1 balance sheet as it should appear for comparative purposes in the 20X2 annual report. 1-B. Restate the 20X1 statement of operations as it should appear for comparative purposes in the 20X2 annual report.

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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Question

Condensed financial statements for 20X2 (using WAC) and 20X1 (as originally reported) appear below. Inventory as originally reported at December 31, 20X1 ($77,907), and December 31, 20X0 ($127,574), increases by $36,382 and $37,432, respectively under WAC.

Ignore income taxes.

ABBA Fabrics, Inc., Balance Sheets December 31,
(in thousands)	20X2 (Under WAC)		20X1 (Under LIFO)
Current assets:
Cash and cash equivalents	$	2,338		$	2,280
Receivables, less allowance for doubtful accounts		3,380			4,453
Inventories, net		104,156			77,907
Other current assets		1,735			9,866
Total current assets		111,609			94,506
Long-term assets		53,065			56,438
Total assets		164,674			150,944
Total liabilities		117,325			123,888
Common stock		88,348			75,650
Retained earnings		124,907			100,953
Treasury stock		(153,684	)		(153,622	)
Accumulated other comprehensive income		(12,222	)		4,075
Total liabilities and shareholders’ equity	$	164,674		$	150,944

ABBA Fabrics, Inc., Statements of Operations Years Ended December 31,
(in thousands)	20X2 (Under WAC)		20X1 (Under LIFO)
Sales	$	276,381		$	276,247
Cost of goods sold		(156,802	)		(157,617	)
Gross profit		119,579			118,630
Selling, general, and administrative expenses		(112,106	)		(117,815	)
Depreciation and amortization		(4,409	)		(3,815	)
Operating income (loss)	$	3,064		$	(3,000	)

Required:

1-A. Restate the 20X1 balance sheet as it should appear for comparative purposes in the 20X2 annual report.

1-B. Restate the 20X1 statement of operations as it should appear for comparative purposes in the 20X2 annual report.

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Complete this question by entering your answers in the tabs below.
Req 1A
Req 1B
Restate the 20X1 statement of operations as it should appear for comparative purposes in the 20X2 annual report. (Enter
answers in thousands of dollars.)
ABBA Fabrics, Inc.
Statements of Operations
Years Ended December 31,
(in thousands)
Sales
Cost of goods sold
Gross profit
Selling, general, and administrative expenses
Depreciation and amortization
Operating income (loss)
$
$
20X2
276,381 $
(156,802)
119.579
(112,106)
(4,409)
(Restated)
20X1
3,064 $
< Req 1A
276,247
276,247
(117,815)
(3,815)
154,617
Req 1B >

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