Millington Materials is a leading supplier of building equipment, building products, materials, and timber for sale, with over 200branches across the Mid-South. On January 1, 2021, management decided to change from the average inventory costing method tothe FIFO inventory costing method at each of its outlets.The following table presents information concerning the change. The income tax rate for all years is 25%.FIFOIncome before Income TaxAverage Cost$38 millionDifference$36 millionBefore 2020 $ 74 million60 million32 million28 million64 million 40 million 24 million20202021Required:1. Prepare the journal entry to record the change in accounting principle.2. Determine the net income to be reported in the 2021-2020 comparative income statements.4. Indicate the affect of the change in the 2021-2020 comparative statements of shareholders' equity assuming cash dividends were$7.50 million each year and that no dividends were paid prior to 2020.

1. Journal entry to record changes in accounting principle…

Millington Materials is a leading supplier of building equipment, building products, materials, and timber for sale, with over 200 branches across the Mid-South. On January 1, 2021, management decided to change from the average inventory costing method to the FIFO inventory costing method at each of its outlets. The following table presents information concerning the change. The income tax rate for all years is 25%. Incone before Income Tax FIFO Before 2020 $ 74 million 2020 2021 60 million Average Cost Difference $38 million $36 million 32 million 28 million 64 million 40 million 24 million Required: 1. Prepare the journal entry to record the change in accounting principle. 2. Determine the net income to be reported in the 2021-2020 comparative income statements. 4. Indicate the affect of the change in the 2021-2020 comparative statements of shareholders' equity assuming cash dividends were $7.50 million each year and that no dividends were paid prior to 2020.

Millington Materials is a leading supplier of building equipment, building products, materials, and timber for sale, with over 200 branches across the Mid-South. On January 1, 2021, management decided to change from the average inventory costing method to the FIFO inventory costing method at each of its outlets. The following table presents information concerning the change. The income tax rate for all years is 25%. Incone before Income Tax FIFO Before 2020 $ 74 million 2020 2021 60 million Average Cost Difference $38 million $36 million 32 million 28 million 64 million 40 million 24 million Required: 1. Prepare the journal entry to record the change in accounting principle. 2. Determine the net income to be reported in the 2021-2020 comparative income statements. 4. Indicate the affect of the change in the 2021-2020 comparative statements of shareholders' equity assuming cash dividends were $7.50 million each year and that no dividends were paid prior to 2020.

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

Millington Materials is a leading supplier of building equipment, building products, materials, and timber for sale, with over 200
branches across the Mid-South. On January 1, 2021, management decided to change from the average inventory costing method to
the FIFO inventory costing method at each of its outlets.
The following table presents information concerning the change. The income tax rate for all years is 25%.
FIFO
Income before Income Tax
Average Cost
$38 million
Difference
$36 million
Before 2020 $ 74 million
60 million
32 million
28 million
64 million 40 million 24 million
2020
2021
Required:
1. Prepare the journal entry to record the change in accounting principle.
2. Determine the net income to be reported in the 2021-2020 comparative income statements.
4. Indicate the affect of the change in the 2021-2020 comparative statements of shareholders' equity assuming cash dividends were
$7.50 million each year and that no dividends were paid prior to 2020.

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