Second Thought Products (STP) began operations on January 1, 2021, and adopted the FIFO method of inventory valuation at that time. Management elected to change its inventory method to the average-cost method effective January 1, 2024. The new method more fairly presents the company's financial position and results of operations. The following information is available for the years ended December 31, 2021, through December 31, 2024. STP is subject to a 40% income tax rate. The company still uses the FIFO method for income tax reporting. (Click the icon to view the income information for both methods.) Read the requirements. Requirement a. Compute the cumulative effect, net of tax, for the 3-year period needed to record a change from the FIFO method to the average-cost method. (Use a minus sign or parentheses for any decreases in income.) Cost of Goods Sold Under Change in Cost Change in Cost Cumulative Change Average-Cost of Goods Sold Year Method FIFO Method Pre-Tax of Goods Sold Net of Tax in Cost of Goods Sold Net of Tax 2021 $ 176,400 $ 201,600 2022 117,600 134,400 2023 252,000 277,200 Second Thought Products (STP) began operations on January 1, 2021, and adopted the FIFO method of inventory valuation at that time. Management elected to change its inventory method to the average-cost method effective January 1, 2024. The new method more fairly presents the company's financial position and results of operations. The following information is available for the years ended December 31, 2021, through December 31, 2024. STP is subject to a 40% income tax rate. The company still uses the FIFO method for income tax reporting. 2023 252,000 277,200 Requirement b. Prepare the journal entry to record the change in accounting for inventory valuation. (Record debits first, then credits. Exclude explanations from any journal entries.) Account January 1, 2024 Income Information Cost of Goods Sold Under Average Cost Requirement c. Indicate the cost of goods sold reported on the income statement for 2021, 2022, 2023, and 2024. Year Method FIFO Method Cost of Goods Sold 2021 $ 176,400 $ 201,600 under the Average- 2022 117,600 134,400 2023 252,000 277,200 Year 2021 2022 2023 Cost Method 2024 285,600 260,400 2024 Print Done ×

Second Thought Products (STP) began operations on January 1, 2021, and adopted the FIFO method of inventory valuation at that time. Management elected to change its inventory method to the average-cost method effective January 1, 2024. The new method more fairly presents the company's financial position and results of operations. The following information is available for the years ended December 31, 2021, through December 31, 2024. STP is subject to a 40% income tax rate. The company still uses the FIFO method for income tax reporting. (Click the icon to view the income information for both methods.) Read the requirements. Requirement a. Compute the cumulative effect, net of tax, for the 3-year period needed to record a change from the FIFO method to the average-cost method. (Use a minus sign or parentheses for any decreases in income.) Cost of Goods Sold Under Change in Cost Change in Cost Cumulative Change Average-Cost of Goods Sold Year Method FIFO Method Pre-Tax of Goods Sold Net of Tax in Cost of Goods Sold Net of Tax 2021 $ 176,400 $ 201,600 2022 117,600 134,400 2023 252,000 277,200 Second Thought Products (STP) began operations on January 1, 2021, and adopted the FIFO method of inventory valuation at that time. Management elected to change its inventory method to the average-cost method effective January 1, 2024. The new method more fairly presents the company's financial position and results of operations. The following information is available for the years ended December 31, 2021, through December 31, 2024. STP is subject to a 40% income tax rate. The company still uses the FIFO method for income tax reporting. 2023 252,000 277,200 Requirement b. Prepare the journal entry to record the change in accounting for inventory valuation. (Record debits first, then credits. Exclude explanations from any journal entries.) Account January 1, 2024 Income Information Cost of Goods Sold Under Average Cost Requirement c. Indicate the cost of goods sold reported on the income statement for 2021, 2022, 2023, and 2024. Year Method FIFO Method Cost of Goods Sold 2021 $ 176,400 $ 201,600 under the Average- 2022 117,600 134,400 2023 252,000 277,200 Year 2021 2022 2023 Cost Method 2024 285,600 260,400 2024 Print Done ×

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter22: Accounting For Changes And Errors.

Section: Chapter Questions

Problem 8E: In 2020, Frost Company, which began operations in 2018, decided to change from LIFO to FIFO because...

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