Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
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Chapter 20, Problem 20.7E
Change in principle; change in inventory cost method
• LO20–2
Millington Materials is a leading supplier of building equipment, building products, materials and timber for sale, with over 200 branches across the Mid-South. On January 1, 2018, management decided to change from the average inventory costing method to the FIFO inventory costing method at each of its outlets. The following table presents information concerning the change. The income tax rate for all years is 40%.
Required:
1. Prepare the
2. Determine the net income to be reported in the 2018–2017 comparative income statements.
3. Which other 2017 amounts would be reported differently in the 2018–2017 comparative income statements and 2018–2017 comparative
4. How would the change be reflected in the 2018–2017 comparative statements of shareholders’ equity? Cash dividends were $1 million each year. Assume no dividends were paid prior to 2017.
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Exercise 20-1 (Algo) Change in principle; change in inventory methods [LO20-2]
During 2019 (its first year of operations) and 2020, Fieri Foods used the FIFO inventory costing method for both financial reporting and
tax purposes. At the beginning of 2021, Fieri decided to change to the average method for both financial reporting and tax purposes.
Income components before income tax for 2019, 2020, and 2021 were as follows:
($ in millions)
Revenues
Cost of goods sold (FIFO)
Cost of goods sold (average)
Operating expenses
2019 2020
2021
$50
$ 460 $47
(46)
(68)
(274) (282) (286)
(54)
(48)
(72) (78)
Dividends of $27 million were paid each year. Fieri's fiscal year ends December 31.
Required:
1. Prepare the journal entry at the beginning of 2021 to record the change in accounting principle. (Ignore income taxes.)
2. Prepare the 2021-2020 comparative income statements.
3. & 4. Determine the balance in retained earnings at January 1, 2020 as Fieri reported using FIFO method and determine the…
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15
Question 6: Inventories
Answer the following three questions using the below information taken
from the annual report of a US manufacturing firm. You can ignore taxes
for this exercise.
Income Statement:
December 31
2021 2020
(millions of dollars)
Net Sales
150 120
Cost of Goods Sold
110
95
Selling, General and Administrative
15
15
Expenses
Other operating expenses
10
15
Net income
15
-5
Inventories:
Inventories are valued at the lower of cost or net realizable value. The
majority of our inventory is valued on the "last-in, first-out" (LIFO) basis,
but inventories of certain subsidiaries are valued using the FIFO (“first-in,
first-out") method.
December 31
Inventory
(millions of dollars) 2021 2020
Raw materials
Work in process
Finished products
Total
10
14
11
13
9
7
30
34
If inventories had been valued using only the FIFO method, inventories
would have been $18 million and $12 million higher than reported at
December 31, 2021 and 2020, respectively.
A. Please calculate
COGS/Average…
Chapter 20 Solutions
Intermediate Accounting
Ch. 20 - Prob. 20.1QCh. 20 - There are three basic accounting approaches to...Ch. 20 - Prob. 20.3QCh. 20 - Lynch Corporation changes from the...Ch. 20 - Sugarbaker Designs Inc. changed from the FIFO...Ch. 20 - Most changes in accounting principles are recorded...Ch. 20 - Southeast Steel, Inc., changed from the FIFO...Ch. 20 - Prob. 20.8QCh. 20 - Its not easy sometimes to distinguish between a...Ch. 20 - For financial reporting, a reporting entity can be...
Ch. 20 - Prob. 20.11QCh. 20 - Describe the process of correcting an error when...Ch. 20 - Prob. 20.13QCh. 20 - If it is discovered that an extraordinary repair...Ch. 20 - Prob. 20.15QCh. 20 - Change in inventory methods; FIFO method to the...Ch. 20 - Change in inventory methods; average cost method...Ch. 20 - Change in inventory methods; FIFO method to the...Ch. 20 - Change in depreciation methods LO203 Irwin, Inc.,...Ch. 20 - Prob. 20.5BECh. 20 - Book royalties LO204 Three programmers at Feenix...Ch. 20 - Warranty expense LO204 In 2017, Quapau Products...Ch. 20 - Change in estimate; useful life of patent LO204...Ch. 20 - Prob. 20.9BECh. 20 - Error correction LO206 In 2018, internal auditors...Ch. 20 - Prob. 20.11BECh. 20 - Error correction LO206 In 2018, the internal...Ch. 20 - Change in principle; change in inventory methods ...Ch. 20 - Change in principle; change in inventory methods ...Ch. 20 - Change from the treasury stock method to retired...Ch. 20 - Change in principle; change to the equity method ...Ch. 20 - Prob. 20.5ECh. 20 - FASB codification research LO202 Access the FASB...Ch. 20 - Change in principle; change in inventory cost...Ch. 20 - Change in inventory methods; FIFO method to the...Ch. 20 - Change in inventory methods; FIFO method to the...Ch. 20 - Change in depreciation methods LO203 For...Ch. 20 - Change in depreciation methods LO203 The Canliss...Ch. 20 - Book royalties LO204 Dreighton Engineering Group...Ch. 20 - Loss contingency LO204 The Commonwealth of...Ch. 20 - Warranty expense LO204 Woodmier Lawn Products...Ch. 20 - Prob. 20.15ECh. 20 - Accounting change LO204 The Peridot Company...Ch. 20 - Change in estimate; useful life and residual value...Ch. 20 - Classifying accounting changes LO201 through...Ch. 20 - Error correction; inventory error LO206 During...Ch. 20 - Error corrections; investment LO206 Required: 1....Ch. 20 - Prob. 20.21ECh. 20 - Prob. 20.22ECh. 20 - Prob. 20.23ECh. 20 - Inventory errors LO206 Indicate with the...Ch. 20 - Classifying accounting changes and errors LO201...Ch. 20 - Change in inventory costing methods; comparative...Ch. 20 - P 20-2 Change in principle; change in method of...Ch. 20 - Change in inventory costing methods; comparative...Ch. 20 - Change in inventory methods LO202 The Rockwell...Ch. 20 - Change in inventory methods LO202 Fantasy...Ch. 20 - Change in principle; change in depreciation...Ch. 20 - Depletion; change in estimate LO204 In 2018, the...Ch. 20 - Accounting changes; six situations LO201, LO203,...Ch. 20 - Prob. 20.9PCh. 20 - Inventory errors LO206 You have been hired as the...Ch. 20 - Error correction; change in depreciation method ...Ch. 20 - Accounting changes and error correction; seven...Ch. 20 - Prob. 20.13PCh. 20 - Prob. 20.14PCh. 20 - Prob. 20.15PCh. 20 - Prob. 20.16PCh. 20 - Prob. 20.17PCh. 20 - Integrating Case 201 Change to dollar-value LIFO ...Ch. 20 - Prob. 20.2BYPCh. 20 - Prob. 20.3BYPCh. 20 - Analysis Case 204 Change in inventory methods;...Ch. 20 - Prob. 20.5BYPCh. 20 - Prob. 20.6BYPCh. 20 - Analysis Case 208 Various changes LO201 through...Ch. 20 - Analysis Case 209 Various changes LO201 through...Ch. 20 - Prob. 20.10BYPCh. 20 - Prob. 20.11BYPCh. 20 - Prob. 20.12BYPCh. 20 - Prob. 1CCTC
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- 1arrow_forwardExercise 20-1 (Algo) Change in principle; change in inventory methods [LO20-2] During 2019 (its first year of operations) and 2020, Fieri Foods used the FIFO inventory costing method for both financial report tax purposes. At the beginning of 2021, Fieri decided to change to the average method for both financial reporting and tax purp Income components before income tax for 2019, 2020, and 2021 were as follows: ($ in millions) 2019 2020 2021 $ 520 $ 550 (59) (88) (306) Revenues Cost of goods sold (FIFO) Cost of goods sold (average) Operating expenses $ 510 (51) (78) (294) (53) (82) (302) Dividends of $32 million were paid each year. Fieri's fiscal year ends December 31. Required: 1. Prepare the journal entry at the beginning of 2021 to record the change in accountin 2. Prepare the 2021-2020 comparative income statements. 3. & 4. Determine the balance in retained earnings at January 1, 2020 as Fieri reported using FIFO method and determine the adjustment of balance in retained earnings…arrow_forward28arrow_forward
- QUESTION 1 a. Kpogo Ltd has the following products in inventory at the end of 2019: Units Cost per unit GH¢ XYZ (completed) 540 22 ABC (part complete) 280 26 Each product normally sells at GH¢34 per unit. Due to the difficult trading conditions, Kpogo Ltd intends to offer a discount of 15% per unit and expects to incur GH¢4 per unit in selling costs. GH¢10 per unit is expected to be incurred to complete each unit of ABC. Required: In accordance with IAS 2 Inventories, at what amount should inventory be stated in the financial statements of Kpogo Ltd as at 31 December 2019? b. According to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, an entity must select and apply its accounting policies consistently from one period to the next and among various items in the financial statements. However, an entity may change its accounting policies under certain conditions. Required: Identify the circumstances under which it may be appropriate to change accounting policy in…arrow_forwardProblem 8-15 (Algo) Dollar-value LIFO [LOB-8] On January 1, 2024, a company adopted the dollar-value LIFO inventory method. The inventory value for its one inventory pool on this date was $270,000. An internally generated cost index is used to convert ending inventory to bese year. Year-end Inventories at year- end costs and cost indexes for its one inventory pool were as follows: Year Ended December 31 2024 2025 2026 Inventory Year- Cost Index (Relative End Costs $354,640 365,040 413,110 141,840 to Base Year) 1.04 1.08 1.09 Required: Calculate inventory amounts at the end of each year Note: Round intermediate calculations and final answers to the nearest whole dollars. Date Inventory Layers Converted to Base Year Cost Inventory at Year-End Inventory Cost Index Layers at Base Year Cost Year-End Cost 01012024 12/31/2024 12012025 12012026 Inventory Layers Converted to Cost Inventory DVL Cost Inventory Layers at Year- Inventory End Cost Layers Converted to Cost Index Cost Base 2024 Base…arrow_forward34arrow_forward
- A D F G H Problem #3 Robin Rotelle Corp. began operations late in 2020 and adopted the conventional retail method. Because there was no beginning inventory for 2020 and no markdowns during 2020, the ending inventory as of Dec. 31, 2020 was $525,000 using either the conventional retail or LIFO retail methods. At the end of 2021 Robin wants to compare the results of applying the conventional and LIFO retail methods. The following data is available for computations: Cost Retail Inventory Dec. 31, 2020 525,000 1,312,500 2021 Purchases 1,917,825 4,100,000 2021 Net markups 16,000 2021 Net markdowns 202,071 2021 Net Sales 3,690,000 2021 Price Index 108 Required: Compute the cost of the 2021 ending inventory under the a conventional retail method b LIFO retail method Dollar-value Lifo Retail Method (2020 is "Base-year") 11 02 D3arrow_forward10arrow_forwardM6arrow_forward
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