Retained Earnings Statement Beginning retained earnings Income Statement 2019 2019 Revenues Cost of goods sold Gross profit Operating expenses Income before income taxes $100,000 (60,000) Add: Net income $ 40,000 (25,000) $ 15,000 (3,150) $ 11,850 24 $ 15,000 $ 11,850 $ 26,850 $ (6,000) $ 20,850 Less: Dividends Ending retained earnings Income tax expense Net income Earnings per share 1.19 Balance Sheet (12/31/2019) $ 10,260 38,000 64,100 Cash 2$ Accounts payable Income taxes payable Deferred tax liability Common stock, no par Retained earnings 3,000 Inventory Other assets 3,150 3,360 82,000 $112,360 20,850 $112,360 An analysis of the accounting records discloses the following cost of goods sold under the FIFO and average cost inventory methods: FIFO Cost of Goods Sold $50,000 60,000 70,000 Average Cost of Goods Sold $57,000 69,000 80,000 2018 2019 2020 There are no indirect effects of the change in inventory method. Revenues for 2020 total $130,000; operating expenses for 2020 total S30,000. Koopman is subject to a 21% income tax rate in all years; it pays the income taxes payable of a current year in the first quarter of the next year. Koopman had 10,000 shares of common stock outstanding during all years; it paid dividends of $1 per share in 2020. At the end of 2020, Koopman had cash of s10,000, inventory of $24,000, other assets of $70,800, accounts payable of $4,500, and income taxes payable of $6,000. It desires to show financial statements for the current year and previous year in its 2020 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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koopman Company began operations on January 1, 2018, and uses the FIFO inventory method for financial reporting and the average cost inventory method for income taxes. At the beginning of 2020, koopman decided to switch to the average cost inventory method for financial reporting. It had previously reported the following financial statement information for 2019: 1. Prepare the journal entry to reflect the change in methods at the beginning of 2020. Show supporting calculations. 2. Prepare the 2020 financial statements. Notes to the financial statements are not necessary. Show supporting calculations.

Retained Earnings Statement
Beginning retained earnings
Income Statement
2019
2019
Revenues
Cost of goods sold
Gross profit
Operating expenses
Income before income taxes
$100,000
(60,000) Add: Net income
$ 40,000
(25,000)
$ 15,000
(3,150)
$ 11,850
24
$ 15,000
$ 11,850
$ 26,850
$ (6,000)
$ 20,850
Less: Dividends
Ending retained earnings
Income tax expense
Net income
Earnings per share
1.19
Balance Sheet (12/31/2019)
$ 10,260
38,000
64,100
Cash
2$
Accounts payable
Income taxes payable
Deferred tax liability
Common stock, no par
Retained earnings
3,000
Inventory
Other assets
3,150
3,360
82,000
$112,360
20,850
$112,360
An analysis of the accounting records discloses the following cost of goods sold under the FIFO and average cost
inventory methods:
FIFO Cost of Goods Sold
$50,000
60,000
70,000
Average Cost of Goods Sold
$57,000
69,000
80,000
2018
2019
2020
There are no indirect effects of the change in inventory method. Revenues for 2020 total $130,000; operating
expenses for 2020 total S30,000. Koopman is subject to a 21% income tax rate in all years; it pays the income
taxes payable of a current year in the first quarter of the next year. Koopman had 10,000 shares of common stock
outstanding during all years; it paid dividends of $1 per share in 2020. At the end of 2020, Koopman had cash of
s10,000, inventory of $24,000, other assets of $70,800, accounts payable of $4,500, and income taxes payable
of $6,000. It desires to show financial statements for the current year and previous year in its 2020 annual report.

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