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 21.1P
Change in Accounting Principle, Inventory. Second Thought Products (STP) began operations on January 1, 2017, and adopted the FIFO method of
| Cost of Goods Sold Under | ||
| Year | Average Cost Method | FIFO Method |
| 2017 2018 2019 2020 |
$176,400 117,600 252,000 285,600 |
$201,600 134,400 277,200 260,400 |
Required
- 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.
- b. Prepare the
journal entry to record the change in accounting for inventory valuation - c. Indicate where STP should report the net of tax cumulative effect, assuming that the first
balance sheet presented is for the year ended December 31, 2019. - d. Indicate the cost of goods sold reported on the income statement for 2017, 2018, 2019, and 2020
- e. Assume that this change in principle is considered to be impractical Indicate the cost of goods on the income statement for 2017, 2018, 2019, and 2020.
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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…
Sheffield Company began operations on January 1, 2018, and uses the average-cost method of pricing inventory. Management is contemplating a change in inventory methods for 2021. The following information is available for the years 2018–2020.
Net Income Computed Using
Average-Cost Method
FIFO Method
LIFO Method
2018
$16,010
$19,020
$12,120
2019
18,070
21,180
13,950
2020
20,200
25,010
17,110
(a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2021.
(b) Determine net income to be reported for 2018, 2019, and 2020, after giving effect to the change in accounting principle.
(c) Assume Sheffield Company used the LIFO method instead of the average cost method during the years 2018–2020. In 2021, Sheffield changed to the FIFO method. Prepare the journal entry necessary to record the change in principle.
FTC Company had used the FIFO method of inventory valuation since it began operations in 2016. The entity decided to
change to the weighted average method for measuring inventory at the beginning of 2019. The income tax rate is 30%.
The following schedule shows year-end inventory balances:
Year FIFO
Weighted Average
2016
P4,500,000
P5,400,000
2017
7,800,000
7,100,000
2018
8,300,000
7,800,000
What amount should be reported for 2019 as the cumulative effect of the change in accounting policy?
(A P500,000 decrease in retained earnings
B P350,000 increase in retained earnings
(C P350,000 decrease in retained earnings
D P500,000 increase in retained earnings
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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