Richelle Company adapted the following changes during 2022: • Appropriately changed to the FIFO cost method from the weighted-average cost method for financial statement and income tax purposes. The change will result in a P444,500 increase in the beginning inventory at January 1, 2022. • Changed its method of accounting for bad debts from the direct write-off method to the allowance method. The company's controller determined that an allowance of P275,950 should be established on that date. • Due to technological changes, depreciable assets will have lower residual values than were originally expected. Analysis shows that depreciation in prior years was understated by P224,050.
Richelle Company adapted the following changes during 2022: • Appropriately changed to the FIFO cost method from the weighted-average cost method for financial statement and income tax purposes. The change will result in a P444,500 increase in the beginning inventory at January 1, 2022. • Changed its method of accounting for bad debts from the direct write-off method to the allowance method. The company's controller determined that an allowance of P275,950 should be established on that date. • Due to technological changes, depreciable assets will have lower residual values than were originally expected. Analysis shows that depreciation in prior years was understated by P224,050.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Question 12
Richelle Company adapted the following changes during 2022:
• Appropriately changed to the FIFO cost method from the weighted-average cost method for financial
statement and income tax purposes. The change will result in a P444,500 increase in the beginning
inventory at January 1, 2022.
• Changed its method of accounting for bad debts from the direct write-off method to the allowance method.
The company's controller determined that an allowance of P275,950 should be established on that date.
• Due to technological changes, depreciable assets will have lower residual values than were originally
expected. Analysis shows that depreciation in prior years was understated by P224,050.
Ignoring income tax effect, what is the net adjustment to the 2022 beginning balance of retained earnings of
Richelle Company? Indicate whether Increase or Decrease.
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