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%. Income before Income Tax FIFO Average Cost Difference Before 2020 $30 million $16 million $14 million 2020 16 10 6 2021 20 18 2 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 $2 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%. Income before Income Tax FIFO Average Cost Difference Before 2020 $30 million $16 million $14 million 2020 16 10 6 2021 20 18 2 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 $2 million each year and that no dividends were paid prior to 2020.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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%.
| Income before Income Tax | |||
| FIFO | Average Cost | Difference | |
| Before 2020 | $30 million | $16 million | $14 million |
| 2020 | 16 | 10 | 6 |
| 2021 | 20 | 18 | 2 |
Required:
1. Prepare the
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 $2 million each year and that no dividends were paid prior to 2020.
Transcribed Image Text:Required 1
Required 2
Required 4
Indicate the affect of the change in the 2021-2020 comparative statements of shareholders' equity assuming cash dividends
were $2 million each year and that no dividends were paid prior to 2020. (Enter your answers in millions rounded to 1 decimal
place (i.e., 5,500,000 should be entered as 5.5).)
MILLINGTON SUPPLIES
Statement of Shareholders' Equity
For the Years Ended Dec. 31, 2021 and 2020
Common
Additional
Retained
Total Shareholders'
(S in millions)
Stock
Paid-in Capital
Earnings
Equity
Balance at Jan. 1, 2020
Balance at Dec. 31, 2020
Balance at Dec. 31, 2021
< Required 2
Required 4 >
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