On January 1, year 2, Belmont Company changed its inventory cost flow method to the FIFO cost method from the LIFO cost method. Belmont can justify the change, which was made for both financial statement and income tax reporting purposes. Belmont's inventories aggregated $4,000,000 on the LIFO basis at December 31, year 1. Supplementary records maintained by Belmont showed that the inventories would have totaled $4,800,000 at December 31, year 1, on the FIFO basis. Belmont does not have sufficient information to calculate the effect of the change in inventories for years prior to year 1. Ignoring income taxes, the adjustment for the effect of changing to the FIFO method from the LIFO method should be reported by Belmont In the year 2 retained earnings statement as an $800,000 credit adjustment to the beginning balance. In the year 1 retained earnings statement as an $800,000 debit adjustment to the beginning balance. In the year 2 income statement as an $800,000 loss from cumulative effect of change in accounting principle. As an adjustment to the balances of inventory, and a retrospective application to cost of goods sold, net income, and retained earnings in the year 1 comparative financial statements.
On January 1, year 2, Belmont Company changed its inventory cost flow method to the FIFO cost method from the LIFO cost method. Belmont can justify the change, which was made for both financial statement and income tax reporting purposes. Belmont's inventories aggregated $4,000,000 on the LIFO basis at December 31, year 1. Supplementary records maintained by Belmont showed that the inventories would have totaled $4,800,000 at December 31, year 1, on the FIFO basis. Belmont does not have sufficient information to calculate the effect of the change in inventories for years prior to year 1. Ignoring income taxes, the adjustment for the effect of changing to the FIFO method from the LIFO method should be reported by Belmont In the year 2 retained earnings statement as an $800,000 credit adjustment to the beginning balance. In the year 1 retained earnings statement as an $800,000 debit adjustment to the beginning balance. In the year 2 income statement as an $800,000 loss from cumulative effect of change in accounting principle. As an adjustment to the balances of inventory, and a retrospective application to cost of goods sold, net income, and retained earnings in the year 1 comparative financial statements.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A4
Transcribed Image Text:On January 1, year 2, Belmont Company changed its inventory cost flow method to the FIFO cost method from the LIFO cost method.
Belmont can justify the change, which was made for both financial statement and income tax reporting purposes. Belmont's
inventories aggregated $4,000,000 on the LIFO basis at December 31, year 1. Supplementary records maintained by Belmont showed
that the inventories would have totaled $4,800,000 at December 31, year 1, on the FIFO basis. Belmont does not have sufficient
information to calculate the effect of the change in inventories for years prior to year 1. Ignoring income taxes, the adjustment for the
effect of changing to the FIFO method from the LIFO method should be reported by Belmont
In the year 2 retained earnings statement as an $800,000 credit adjustment to the beginning balance.
In the year 1 retained earnings statement as an $800,000 debit adjustment to the beginning balance.
In the year 2 income statement as an $800,000 loss from cumulative effect of change in accounting principle.
As an adjustment to the balances of inventory, and a retrospective application to cost of goods sold, net income, and
retained earnings in the year 1 comparative financial statements.
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