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 20.9E
Change in inventory methods; FIFO method to the LIFO method
• LO20–3
Wolfgang Kitchens has always used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2018, Wolfgang decided to change to the LIFO method. Net income in 2018 was correctly stated as $90 million. If the company had used LIFO in 2017, its cost of goods sold would have been higher by $7 million that year. Company accountants are able to determine that the cumulative net income for all years prior to 2017 would have been lower by $23 million if LIFO had been used all along, but have insufficient information to determine specific effects of using LIFO in 2016. Last year, Wolfgang reported the following net income amounts in its comparative income statements:
| ($ in millions) | 2017 | 2016 | 2015 |
| Net income | $84 | $82 | $80 |
Required:
- 1. Prepare the
journal entry at the beginning of 2018 to record the change in accounting principle. (Ignore income taxes.) - 2. Briefly describe other steps Wolfgang will take to report the change.
- 3. What amounts will Wolfgang report for net income in its 2018–2016 comparative income statements?
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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 $525,000 using either the conventional retail
or LIFO retail methods. At the end of 2021 Robin wants to compare the results of applying
the conventional and LIFO retail methods.
The following data is available for computations:
Cost
Retail
Inventory Dec. 31, 2020
525,000
1,312,500
2021 Purchases
1,917,825
4,100,000
2021 Net markups
16,000
2021 Net markdowns
202,071
2021 Net Sales
3,690,000
2021 Price Index
108
Required: Compute the cost of the 2021 ending inventory under the
a conventional retail method
b LIFO retail method
Dollar-value Lifo Retail Method (2020 is "Base-year")
11
02
D3
Subject : Accounting
Exercise 20-1 (Algo) Change in principle; change in inventory methods [LO20-2]
During 2019 (its first year of operations) and 2020, Fieri Foods used the FIFO inventory costing method for both financial reporting and
tax purposes. At the beginning of 2021, Fieri decided to change to the average method for both financial reporting and tax purposes.
Income components before income tax for 2019, 2020, and 2021 were as follows:
($ 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…
Chapter 20 Solutions
Intermediate Accounting
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- sharadarrow_forwardExercise 20-7 (Algo) 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, 2024, management decided to change from the average inventory costing method t 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 25%. Income before Income Tax Average Cost $11 million 8 million Difference $7 million Before 2823 2023 2924 FIFO $ 18 million 14 million 13 million 6 million 12 million 1 million Required: 1. Prepare the journal entry to record the change in accounting principle. 2. Determine the net income to be reported in the 2024-2023 comparative income statements. 4. Indicate the affect of the change in the 2024-2023 comparative statements of shareholders' equity assuming cash dividends wi $3.50 million each…arrow_forward1arrow_forward
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- Sh10 Please help me.arrow_forward#25Gelai company had used the FIFO method of inventory valuation since it began operations in 2017. Gelai to change to theweighted average method for determining inventory costs at the beginning of 2017. The following schedule shows year endinventory balances under the FIFO and weighted average method:Year FIFO Weighted Average2017 5,400,000 6,480,0002018 9,360,000 8,520,0002019 9,960,000 9,360,000What amount, before income tax, should be reported in the 2020 statement of retained earnings as the cumulative effect of thechange in accounting policy? PLS provide solution and explanation for the answer above Philippines Accounting standardarrow_forwardPlease do not give solution in image format thankuarrow_forward
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