Rockwell Corporation uses a periodic inventory system and has used the FIFO cost method since inception of the company in 1979. In 2024, the company decided to switch to the average cost method. Data for 2024 are as follows: Beginning inventory, FIFO (5,000 units @ $30) Purchases: 5,000 units @ $36 5,000 units @ $40 Cost of goods available for sale Sales for 2024 (8,000 units @ $70) Additional Information: $ 150,000 $ 180,000 200,000 a. The company's effective income tax rate is 40% for all years. 380,000 $ 530,000 $ 560,000 b. If the company had used the average cost method prior to 2024, ending inventory for 2023 would have been $130,000. c. 7,000 units remained in inventory at the end of 2024. Required: 1. Ignoring income taxes, prepare the 2024 journal entry to adjust the accounts to reflect the average cost method. 2. What is the effect of the change in methods on 2024 net income? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required 1 Required 2 What is the effect of the change in methods on 2024 net income? The effect of the change for the year 2024 is a $ 14,000 increase in cost of goods sold resulting in a $ 14,000 decrease in income before taxes and a(n) $ 8,400 × decrease in income after tax.
Rockwell Corporation uses a periodic inventory system and has used the FIFO cost method since inception of the company in 1979. In 2024, the company decided to switch to the average cost method. Data for 2024 are as follows: Beginning inventory, FIFO (5,000 units @ $30) Purchases: 5,000 units @ $36 5,000 units @ $40 Cost of goods available for sale Sales for 2024 (8,000 units @ $70) Additional Information: $ 150,000 $ 180,000 200,000 a. The company's effective income tax rate is 40% for all years. 380,000 $ 530,000 $ 560,000 b. If the company had used the average cost method prior to 2024, ending inventory for 2023 would have been $130,000. c. 7,000 units remained in inventory at the end of 2024. Required: 1. Ignoring income taxes, prepare the 2024 journal entry to adjust the accounts to reflect the average cost method. 2. What is the effect of the change in methods on 2024 net income? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required 1 Required 2 What is the effect of the change in methods on 2024 net income? The effect of the change for the year 2024 is a $ 14,000 increase in cost of goods sold resulting in a $ 14,000 decrease in income before taxes and a(n) $ 8,400 × decrease in income after tax.
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter6: Cost Of Goods Sold And Inventory
Section: Chapter Questions
Problem 50E: Inventory Costing Methods Crandall Distributors uses a perpetual inventory system and has the...
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Transcribed Image Text:Rockwell Corporation uses a periodic inventory system and has used the FIFO cost method since inception of the company in 1979. In
2024, the company decided to switch to the average cost method. Data for 2024 are as follows:
Beginning inventory, FIFO (5,000 units @ $30)
Purchases:
5,000 units @ $36
5,000 units @ $40
Cost of goods available for sale
Sales for 2024 (8,000 units @ $70)
Additional Information:
$ 150,000
$ 180,000
200,000
a. The company's effective income tax rate is 40% for all years.
380,000
$ 530,000
$ 560,000
b. If the company had used the average cost method prior to 2024, ending inventory for 2023 would have been $130,000.
c. 7,000 units remained in inventory at the end of 2024.
Required:
1. Ignoring income taxes, prepare the 2024 journal entry to adjust the accounts to reflect the average cost method.
2. What is the effect of the change in methods on 2024 net income?
Transcribed Image Text:Answer is complete but not entirely correct.
Complete this question by entering your answers in the tabs below.
Required 1 Required 2
What is the effect of the change in methods on 2024 net income?
The effect of the change for the year 2024 is a
$ 14,000
increase
in cost of
goods
sold resulting in a
$ 14,000
decrease
in income before taxes and
a(n)
$
8,400 ×
decrease
in income after tax.
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