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Taveras Co. decides at the beginning of 2020 to adopt the FIFO method of inventory valuation. Taveras had used the LIFO method for financial reporting since its inception on January 1, 2018, and had maintained records adequate to apply the FIFO method retrospectively. Taveras concluded that FIFO is the preferable inventory method because it reflects the current cost of inventory on the balance sheet. The following table presents the effects of the change in accounting principles on inventory and cost of goods sold.   Inventory Determined by Cost of Goods Sold Determined by Date LIFO Method FIFO Method LIFO Method FIFO Method January 1, 2018 $    0 $    0 $      0 $      0 December 31, 2018   100     80     800     820 December 31, 2019   200   240   1,000     940 December 31, 2020   320   390   1,130   1,100 Other information: 1. For each year presented, sales are $3,000 and operating expenses are $1,000. 2. Taveras provides two years of financial statements. Earnings per share information is not required. Instructions a.    Prepare income statements under LIFO and FIFO for 2018, 2019, and 2020. b.    Prepare income statements reflecting the retrospective application of the accounting change from the LIFO method to the FIFO method for 2020 and 2019. c.    Prepare the note to the financial statements describing the change in method of inventory valuation. In the note, indicate the income statement line items for 2020 and 2019 that were affected by the change in accounting principle. d.    Prepare comparative retained earnings statements for 2019 and 2020 under FIFO. Retained earnings reported under LIFO are as follows:   Retained Earnings Balance December 31, 2018 $1,200 December 31, 2019   2,200 December 31, 2020   3,070

Taveras Co. decides at the beginning of 2020 to adopt the FIFO method of inventory valuation. Taveras had used the LIFO method for financial reporting since its inception on January 1, 2018, and had maintained records adequate to apply the FIFO method retrospectively. Taveras concluded that FIFO is the preferable inventory method because it reflects the current cost of inventory on the balance sheet. The following table presents the effects of the change in accounting principles on inventory and cost of goods sold.   Inventory Determined by Cost of Goods Sold Determined by Date LIFO Method FIFO Method LIFO Method FIFO Method January 1, 2018 $    0 $    0 $      0 $      0 December 31, 2018   100     80     800     820 December 31, 2019   200   240   1,000     940 December 31, 2020   320   390   1,130   1,100 Other information: 1. For each year presented, sales are $3,000 and operating expenses are $1,000. 2. Taveras provides two years of financial statements. Earnings per share information is not required. Instructions a.    Prepare income statements under LIFO and FIFO for 2018, 2019, and 2020. b.    Prepare income statements reflecting the retrospective application of the accounting change from the LIFO method to the FIFO method for 2020 and 2019. c.    Prepare the note to the financial statements describing the change in method of inventory valuation. In the note, indicate the income statement line items for 2020 and 2019 that were affected by the change in accounting principle. d.    Prepare comparative retained earnings statements for 2019 and 2020 under FIFO. Retained earnings reported under LIFO are as follows:   Retained Earnings Balance December 31, 2018 $1,200 December 31, 2019   2,200 December 31, 2020   3,070

FINANCIAL ACCOUNTING
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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Taveras Co. decides at the beginning of 2020 to adopt the FIFO method of inventory valuation. Taveras had used the LIFO method for financial reporting since its inception on January 1, 2018, and had maintained records adequate to apply the FIFO method retrospectively. Taveras concluded that FIFO is the preferable inventory method because it reflects the current cost of inventory on the balance sheet. The following table presents the effects of the change in accounting principles on inventory and cost of goods sold.

 
Inventory Determined by
Cost of Goods Sold Determined by
Date
LIFO Method
FIFO Method
LIFO Method
FIFO Method
January 1, 2018
$    0
$    0
$      0
$      0
December 31, 2018
  100
    80
    800
    820
December 31, 2019
  200
  240
  1,000
    940
December 31, 2020
  320
  390
  1,130
  1,100

Other information:

  • 1. For each year presented, sales are $3,000 and operating expenses are $1,000.
  • 2. Taveras provides two years of financial statements. Earnings per share information is not required.

Instructions

a.    Prepare income statements under LIFO and FIFO for 2018, 2019, and 2020.

b.    Prepare income statements reflecting the retrospective application of the accounting change from the LIFO method to the FIFO method for 2020 and 2019.

c.    Prepare the note to the financial statements describing the change in method of inventory valuation. In the note, indicate the income statement line items for 2020 and 2019 that were affected by the change in accounting principle.

d.    Prepare comparative retained earnings statements for 2019 and 2020 under FIFO. Retained earnings reported under LIFO are as follows:

 
Retained Earnings Balance
December 31, 2018
$1,200
December 31, 2019
  2,200
December 31, 2020
  3,070

 

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