Millington Materials is a leading supplier of building equipment, building products, materials & timber for sale,with over 200 branches across the Mid-South. On January 1, 2016, management decided to change from the LIFOinventory 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 40%.Income before Income TaxAverage CostDifferenceFIFO$8 millionBefore 2015$15 million$7 million8 million5 million3 million20159 million1 million10 million2016Required:1. Prepare the journal entry to record the change in accounting principle. (All tax effects should be reflected inthe deferred tax liability account.)2. Determine the net income to be reported in the 2016-2015 comparative income statements.3. Which other 2015 amounts would be reported differently in the 2016-2015 comparative income statementsand 2016-2015 comparative balance sheets than they were reported the previous year?4. How would the change be reflected in the 2016-2015 comparative statements of shareholders' equity? Cashdividends were $1 million each year. Assume no dividends were paid prior to 2015.

Answered: Millington Materials is a leading…

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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