Intermediate Accounting, Student Value Edition (2nd Edition)
2nd Edition
ISBN: 9780134732145
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Textbook Question
Chapter 21, Problem 21.1E
Change in Accounting Principle, Inventory. Massi Pharmacies, Inc. started operations on January 1, 2014. The company initially used the average-cost method to value its inventory for both book and tax purposes. Effective January 1, 2018. Massi elected to change its
The following information is available for net income after tax for both the FIFO and the average cost methods
| Net Income | ||
| Year Ended | Average Cost | FIFO |
| December 31, 2014 December 31, 2015 December 31, 2016 December 31, 2017 December 31, 2018 |
$235,000 300,000 310,000 425,500 500,000 |
$310,000 376,000 400,500 535,000 585,000 |
Required (Round to the nearest whole dollar)
Prepare the
Prepare the partial comparative income statements for the 3 years ending December 31, 2018.
Prepare the footnote to disclose the change from the average cost to the FIFO basis. Designate the note as “Note A Change in Method of Accounting for Inventory Valuation."
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6. On January 1, 2011, Folk Company changed from the average cost method to the FIFO method to account for its inventory. Ending inventory for each method was given below. Folk Company accrues tax expense on December 31 of each year and pays the tax in April of the following year. The income tax rate is 30%. What is the net income to be reported in 2011 after the change to the FIFO inventory method?
a. 1,610,000
b. 2,300,000
c. 1,750,000
d. 1,890,000
Flay Foods has always used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2021,
Flay decided to change to the LIFO method. As a result of the change, net income in 2021 was $76 million. If the company had used
LIFO in 2020, its cost of goods sold would have been higher by $7 million that year. Flay's records of inventory purchases and sales
are not available for 2019 and several previous years. Last year, Flay reported the following net income amounts in its comparative
income statements:
($ in millions)
Net income
2018 2019
2020
$76 $78 $80
Required:
1. Prepare the journal entry at the beginning of 2021 to record the change in accounting principle. (Ignore income taxes.)
3. What amounts will Flay report for net income in its 2019-2021 comparative income statements?
Flay Foods has always used the FIFO Inventory costing method for both financial reporting and tax purposes. At the beginning of 2021,
Flay decided to change to the LIFO method. As a result of the change, net income in 2021 was $78 million. If the company had used
LIFO in 2020, Its cost of goods sold would have been higher by $5 million that year. Flay's records of Inventory purchases and sales
are not available for 2019 and several previous years. Last year, Flay reported the following net income amounts in its comparative
Income statements:
($ in millions)
Net income
Required:
1. Prepare the Journal entry at the beginning of 2021 to record the change in accounting principle. (Ignore income taxes.)
3. What amounts will Flay report for net Income In Its 2019-2021 comparative Income statements?
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Chapter 21 Solutions
Intermediate Accounting, Student Value Edition (2nd Edition)
Ch. 21 - Are accounting changes permitted in financial...Ch. 21 - How do firms report accounting changes under the...Ch. 21 - Prob. 21.3QCh. 21 - How do firms account for changes in accounting...Ch. 21 - Prob. 21.5QCh. 21 - Prob. 21.6QCh. 21 - Prob. 21.7QCh. 21 - Prob. 21.8QCh. 21 - Do accounting errors that self-correct within two...Ch. 21 - Does a firm need to correct an error that...
Ch. 21 - Prob. 21.1MCCh. 21 - Prob. 21.2MCCh. 21 - Prob. 21.3MCCh. 21 - Prob. 21.4MCCh. 21 - Prob. 21.5MCCh. 21 - Prob. 21.1BECh. 21 - Prob. 21.2BECh. 21 - Prob. 21.3BECh. 21 - Prob. 21.4BECh. 21 - Change in Accounting Principle, Long-Term...Ch. 21 - Prob. 21.6BECh. 21 - Prob. 21.7BECh. 21 - Prob. 21.8BECh. 21 - Prob. 21.9BECh. 21 - Prob. 21.10BECh. 21 - Prob. 21.11BECh. 21 - Prob. 21.12BECh. 21 - Prob. 21.13BECh. 21 - Prob. 21.14BECh. 21 - Change in Accounting Principle, Inventory. Massi...Ch. 21 - Change in Accounting Principle, Long-Term...Ch. 21 - Prob. 21.3ECh. 21 - Change in Accounting Principle, Inventory. Winthur...Ch. 21 - Prob. 21.5ECh. 21 - Prob. 21.6ECh. 21 - Error Analysis and Correction. Feinstein and...Ch. 21 - Prob. 21.8ECh. 21 - Prob. 21.9ECh. 21 - Prob. 21.10ECh. 21 - Change in Accounting Principle, Inventory. Second...Ch. 21 - Prob. 21.2PCh. 21 - Prob. 21.3PCh. 21 - Prob. 21.4PCh. 21 - Prob. 21.5PCh. 21 - Change in Estimate, Inventory, Bad Debt Expense....Ch. 21 - Prob. 21.7PCh. 21 - Cases Judgment Case Judgment Case: Materiality and...Ch. 21 - Prob. 1FSCCh. 21 - Surfing the Standards: Change in Accounting...Ch. 21 - Prob. 1BCC
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