INTERM.ACCT.:REPORTING...-CENGAGENOWV2
3rd Edition
ISBN: 9781337909358
Author: WAHLEN
Publisher: CENGAGE L
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Textbook Question
Chapter 22, Problem 5E
Fava Company began operations in 2018 and used the LIFO inventory method for both financial reporting and income taxes. At the beginning of 2019, the anticipated cost trends in the industry had changed, so that it adopted the FIFO method for both financial reporting and income taxes. Fava reported revenues of $300,000 and $270,000 in 2019 and 2018, respectively. Fava reported expenses (excluding income tax expense) of $125,000 and $120,000 in 2019 and 2018, which included cost of goods sold of $55,000 and $45,000, respectively. An analysis indicates that the FIFO cost of goods sold would have been lower by $8,000 in 2018. The tax rate is 21%. Fava has a simple capital structure with 15,000 shares of common stock outstanding during 2018 and 2019. It paid no dividends in either year.
Required:
- 1. Prepare the
journal entry to reflect the change. - 2. At the end of 2019, prepare the comparative income statements for 2019 and 2018. Notes to the financial statements are not necessary.
- 3. At the end of 2019, prepare the comparative
retained earnings statements for 2019 and 2018.
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Presented below are income statements prepared on a LIFO and FIFO basis for Kenseth Company, which started operations on January 1, 2019. The company presently uses the LIFO method of pricing its inventory and has decided to switch to the FIFO method in 2020. The FIFO income statement is computed in accordance with the requirements of GAAP. Kenseth's profit-sharing agreement with its employees indicates that the company will pay employees 10% of income before profit-sharing. Income taxes are ignored.
LIFO Basis
FIFO Basis
2020
2019
2020
2019
Sales
$3,000
$3,000
$3,000
$3,000
Cost of goods sold
1,130
1,000
1,100
940
Operating expenses
1,000
1,000
1,000
1,000
Income before profit-sharing
870
1,000
900
1,060
Profit-sharing expense
87
100
96
100
Net income
$ 783
$ 900
$ 804
$ 960
Instructions
Answer the following questions.
a. If comparative income statements are prepared, what net…
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…
Amber Corporation reported income from continuing operations of $1,600,000 (after taxes) for the fiscal year ended December 31, 2020. The following information,
which has not yet been considered or included in the above figure, has been revealed as well:
1.
On December31, 2020, Amber adopted the FIFO cost method of inventory valuation. The company had previously used the average method. The change
increased income for 2020 by $50,000 (pre-tax) and the cumulative effect of the change on prior years' income was a $60,000 (pre-tax) increase.
Some equipment was sold for $100,000 cash during the year at a time when its book value was $140,000. (Depreciation has been correctly recorded.)
2.
3.
Amber decided to discontinue its microchip division in 2020. During the current year, the loss on the disposal of this segment was $250,000 (before applicable
taxes).
Instructions
Present in good form the income statement of Amber Corporation for 2020 starting with "Income from continuing operations…
Chapter 22 Solutions
INTERM.ACCT.:REPORTING...-CENGAGENOWV2
Ch. 22 - Prob. 1GICh. 22 - Prob. 2GICh. 22 - Prob. 3GICh. 22 - What steps are necessary to apply the...Ch. 22 - Prob. 5GICh. 22 - Prob. 6GICh. 22 - Prob. 7GICh. 22 - Prob. 8GICh. 22 - Define a change in estimate. What is the proper...Ch. 22 - Prob. 10GI
Ch. 22 - How is a change in depreciation method accounted...Ch. 22 - Describe a change in a reporting entity. How does...Ch. 22 - Prob. 13GICh. 22 - Prob. 14GICh. 22 - Prob. 15GICh. 22 - Prob. 16GICh. 22 - Prob. 17GICh. 22 - Prob. 18GICh. 22 - Prob. 19GICh. 22 - Prob. 20GICh. 22 - The cumulative effect of an accounting change...Ch. 22 - When a change in accounting principle is made...Ch. 22 - Prob. 3MCCh. 22 - A change in the expected service life of an asset...Ch. 22 - During 2019, White Company determined that...Ch. 22 - Generally, how should a change in accounting...Ch. 22 - On January 2, 2017, Garr Company acquired...Ch. 22 - A company has included in its consolidated...Ch. 22 - Shannon Corporation began operations on January 1,...Ch. 22 - Shannon Corporation began operations on January 1,...Ch. 22 - Prob. 1RECh. 22 - Heller Company began operations in 2019 and used...Ch. 22 - Refer to RE22-2. Assume the pretax cumulative...Ch. 22 - Refer to RE22-2. Assume Heller Company had sales...Ch. 22 - Bloom Company had beginning unadjusted retained...Ch. 22 - Suppose that Blake Companys total pretax...Ch. 22 - Bliss Company owns an asset with an estimated life...Ch. 22 - At the end of 2019, Framber Company received 8,000...Ch. 22 - At the end of 2019, Cortex Company failed to...Ch. 22 - At the end of 2019, Jayrad Company paid 6,000 for...Ch. 22 - At the end of 2019, Manny Company recorded its...Ch. 22 - Abrat Company failed to accrue an allowance for...Ch. 22 - The following are independent events: a. Changed...Ch. 22 - Prob. 2ECh. 22 - The following are independent events: a. A...Ch. 22 - Change in Inventory Cost Flow Assumption At the...Ch. 22 - Fava Company began operations in 2018 and used the...Ch. 22 - Berg Company began operations on January 1, 2019,...Ch. 22 - Prob. 7ECh. 22 - In 2020, Frost Company, which began operations in...Ch. 22 - Gundrum Company purchased equipment on January 1,...Ch. 22 - Prob. 10ECh. 22 - On January 1, 2014, Klinefelter Company purchased...Ch. 22 - The following are independent errors made by a...Ch. 22 - The following are independent errors made by a...Ch. 22 - Refer to the information in E22-13. Required:...Ch. 22 - The following are independent errors: a. In...Ch. 22 - Dudley Company failed to recognize the following...Ch. 22 - Prob. 1PCh. 22 - Prob. 2PCh. 22 - Koopman Company began operations on January 1,...Ch. 22 - Schmidt Company began operations on January 1,...Ch. 22 - Prob. 5PCh. 22 - Kraft Manufacturing Company manufactures two...Ch. 22 - Jackson Company has decided to issue common stock...Ch. 22 - At the beginning of 2020, Holden Companys...Ch. 22 - At the end of 2020, while auditing Sandlin...Ch. 22 - At the beginning of 2020, Tanham Company...Ch. 22 - A review of Anderson Corporations books indicates...Ch. 22 - Prob. 12PCh. 22 - Gray Companys financial statements showed income...Ch. 22 - Prob. 14PCh. 22 - There are three types of accounting changes:...Ch. 22 - Prob. 2CCh. 22 - Berkeley Company, a manufacturer of many different...Ch. 22 - When the FASB issues a new generally accepted...Ch. 22 - It is important in accounting theory to be able to...Ch. 22 - Prob. 6CCh. 22 - Prob. 7CCh. 22 - Prob. 8CCh. 22 - Prob. 9CCh. 22 - Sometimes a business entity may change its method...
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