Concept explainers
Change in Accounting Principle, Inventory. Winthur Stores began operations on January 1, 2014, and adopted the FIFO method of accounting for its inventory for book and tax purposes In 2017, it is considering a change to the average-cost method basis for book purposes only. Winthur provided the following information to assist in deciding whether to change
Ending Inventory | Cost of Sales | |||||
Year Ended | FIFO | Average Cost |
FIFO | Average Cost |
FIFO | Average Cost |
12/31/2014 | $12,000 | $10,000 | $74,000 | $ 76,000 | $ 24,600 | $23,400 |
12/31/2015 | 19,500 | 16,000 | 78,500 | 82,000 | 51,600 | 48,300 |
12/31/2016 | 28,000 | 24,000 | 91,000 | 95,000 | 78,000 | 72,300 |
12/31/2017 | 35,600 | 32,000 | 90,000 | 108,000 | 111,600 | 95,100 |
Winthur Stores reported the following income statement information:
Account | 2017 | 2016 | 2015 | 2014 |
Sales revenue | $200,000 | $175,000 | $160,000 | $145,000 |
Selling, general, and administrative expenses | $54,000 | $40,000 | $36,500 | $30,000 |
Income tax rate | 40% | 40% | 40% | 40% |
Required
- a. Prepare the income statements under both methods for the years ended December 31, 2014, through December 31, 2016.
- b. Assume that Winthur Stores changes to the average-cost method effective January 1, 2017. Prepare the comparative income statements for the 3 years ended December 31, 2017.
- c. Prepare the retained earnings column of the statement of stockholders’ equity for the year ended December 31, 2017, assuming that Winthur does not present comparative statements Winthur does not declare dividends in 2014-2017.
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