Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 5, Problem 5Q
James, Inc., sells inventory to Matthews Company, a related party, at James’s standard gross profit rate. At the current fiscal year-end, Matthews still holds some portion of this inventory. If consolidated financial statements are prepared, why are worksheet entries required in two different fiscal periods?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Dog
At the beginning of current year, Black Company changed the inventory cost flow method to FIFO from weighted average method for both financial statement and income tax reporting purposes. The change resulted in a P600,000 increase in the beginning inventory. Ignoring income tax, the accounting change should be reported in the current year:
a. Income statement as of P600,000 debit
b. Retained earnings statement as a P600,000 debit adjustment to the beginning balance.
c. Income statement as a P600,000 credit.
d. Retained earnings statement as a P600,000 credit adjustment to the beginning balance.
Below is the net income of Anita Ferreri Instrument Co., a private corporation, computed under the three inventory methods using a periodic system.
FIFO
Average-Cost
LIFO
2018
$26,000
$24,000
$20,000
2019
30,000
25,000
21,000
2020
28,000
27,000
24,000
2021
34,000
30,000
26,000
Instructions
(Ignore tax considerations.)
a. Assume that in 2021 Ferreri decided to change from the FIFO method to the average-cost method of pricing inventories. Prepare the journal entry necessary for the change that took place during 2021, and show net income reported for 2018, 2019, 2020, and 2021.
b. Assume that in 2021 Ferreri, which had been using the LIFO method since incorporation in 2018, changed to the FIFO method of pricing inventories. Prepare the journal entry necessary to record the change in 2021 and show net income reported for 2018, 2019, 2020, and 2021.
Chapter 5 Solutions
Advanced Accounting
Ch. 5 - Prob. 1QCh. 5 - Prob. 2QCh. 5 - Prob. 3QCh. 5 - Prob. 4QCh. 5 - James, Inc., sells inventory to Matthews Company,...Ch. 5 - Prob. 6QCh. 5 - Prob. 7QCh. 5 - Prob. 8QCh. 5 - Prob. 9QCh. 5 - Prob. 10Q
Ch. 5 - Prob. 11QCh. 5 - Prob. 12QCh. 5 - Prob. 13QCh. 5 - Prob. 1PCh. 5 - Prob. 2PCh. 5 - Prob. 3PCh. 5 - Prob. 4PCh. 5 - Prob. 5PCh. 5 - Prob. 6PCh. 5 - Prob. 8PCh. 5 - Prob. 11PCh. 5 - What is the total of consolidated cost of goods...Ch. 5 - Prob. 13PCh. 5 - Prob. 14PCh. 5 - Prob. 15PCh. 5 - What is the consolidated total for inventory at...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- On January 1, 2021, Blossom Corp. changed its inventory method to FIFO from LIFO for both financial and income tax reporting purposes. The change resulted in a $910000 increase in the January 1, 2021 inventory. Assume that the income tax rate for all years is 30%. Assuming that comparative statements are not issued, the cumulative effect of the accounting change should be reported by Blossom in its 2021 income statement as a $637000 cumulative effect of accounting change. retained earnings statement as a $910000 addition to the beginning balance. retained earnings statement as a $637000 addition to the beginning balance. income statement as a $910000 cumulative effect of accounting change.arrow_forwardVaughn Inc. reported total assets of $6407000 and net income of $505000 for the current year. Vaughn determined that inventory was understated by $140000 at the beginning of the year and $60800 at the end of the year. Ignoring income taxes, what is the corrected amount for total assets and net income for the year? $6407000 and $505000. $6467800 and $425800. $6467800 and $565800. $6346200 and $584200.arrow_forwardAt the balance sheet date, Clarkson Company held title to goods in transit amounting to $214,000. This amount was omitted from the purchases figure for the year and also from the ending inventory. What is the effect of this omission on the net income for the year as calculated when the books are closed? What is the effect on the company's financial position as shown in its balance sheet? Is materiality a factor in determining whether an adjustment for this item should be made?arrow_forward
- On 1/1/21, Shaye Corp. changed its inventory method to FIFO from LIFO for both financial and income tax reporting purposes. The change resulted in a $970k increase in the 1/1/21 inventory. Assume that the income tax rate for all years is 30%. Assuming that comparative statements are not issued, the cumulative effect of the accounting change should be reported by Shaye in its 2021...arrow_forwardBefore 2020, KnowieNowl Company used the cash basis of accounting. For the year ended December 31, KnowieNowl changed to the accrual basis. KnowieNowl cannot determine the beginning balance of supplies inventory. What effect of KnowieNowl’s inability to determine beginning supplies inventory on its 2020 accrual basis profit and December 31, 2020 accrual basis capital, respectively? a. overstated; overstated b. no effect; no effect c. no effect; overstated d. overstated; no effectarrow_forwardAt the end of the Year 2 accounting period, DeYoung Company determined that the market value of its inventory was $79,800. The historical cost of this inventory was $81,400. DeFazio uses the perpetual inventory method. Assuming the amount is immaterial, how will the necessary write-down to reduce the inventory to the lower-of-cost-or-market affect the company's financial statements? Multiple Choice O O Decrease total assets, gross margin, and net income Increase total assets and net income Decrease total assets and gross margin Decrease total assets and net incomearrow_forward
- Sheffield Inc. reported total assets of $6407000 and net income of $505000 for the current year. Sheffield determined that inventory was understated by $138000 at the beginning of the year and $58300 at the end of the year. Ignoring income taxes, what is the corrected amount for total assets and net income for the year?arrow_forwardYou are preparing the income statement of Mark Company for the year ended Dec. 31, 2021. You determine that company's income from continuing operations before income taxes is P2,400,000. At this point, you are considering the proper treatment of the items listed below. Unless otherwise indicated, assume that none of the items listed are included in the P2,400,000 income figure. a. Because of changes in technology, inventory costing P100,000 was written off as obsolete in 2021. The company had never recorded this type of loss before. b. An unusual earthquake damaged the company's plant on Jan. 10, 2022 resulting in a loss to Erwin of P400,000. c. A loss of P360,000 was sustained on April 5, 2021 as a result of typhoon damage to the company's warehouse in Davao. Typhoons rarely occur in that area. d. Prior to 2021, Erwin used an accelerated depreciation method for its plant equipment. In 2021, Anonymous changed to the straight-line method for previously acquired equipment and new…arrow_forwardBelow is the net income of Kingbird Instrument Co., a private corporation, computed under the three inventory methods using a periodic system. 2023 $27,400 2024 2025 2026 FIFO (a1) 28,300 31,100 33,500 Average-Cost (Ignore tax considerations.) $24,200 $21,400 23,500 29,100 29,200 LIFO Account Titles and Explanation 19,800 25,700 25,000 Assume that in 2026 Kingbird decided to change from the FIFO method to the average-cost method of pricing inventories. Prepare the journal entry necessary for the change that took place during 2026. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. List debit entry before credit entry.) Debit Creditarrow_forward
- In its 2021 statement of retained earnings, what amount should Tricky report as the effect of this accounting change? During 2021, Tricky Company decided to change from FIFO method of inventory valuation to the weighted average method. Inventory balances under each method were as follows: FIFO January 1 1,420,000 1,580,000 Weighted Average 1,540,000 1,660,000 December 31 Income tax rate is 35%. In its 2021 statement of retained earnings, what amount should Tricky report as the effect of this accounting change? Your answerarrow_forwardThe following errors were discovered in the preparation of the financial statements of Uni-Focus Company for the year ended November 30, 2021. Goods held on consignment from Tri-Facet Ltd. with a cost of $17,940 were incorrectly included in Uni-Focus Company’s inventory on November 30, 2020. The goods were not sold during the 2021 year and were returned to Tri-Facet. The goods were not included in Uni-Focus Company’s November 30, 2021 inventory count. Assume that Uni-Focus Company’s Inventory account accurately reflects the results of the November 30, 2021 count. During the first week of December 2017, office furniture was purchased for $18,505. The entire purchase was recorded with a debit to Office Supplies Expense, and a credit to Cash. Uni-Focus expected to keep the furniture for 10 years and sell it for $675 at the end of the asset’s useful life. Uni-Focus Company uses the straight-line method of depreciation for furniture. On December 1, 2019, Uni-Focus Company paid an…arrow_forwardConsider each of the following independent situations. Should a company report the goods in its inventory? (a) Goods purchased by the company with shipping terms FOB shipping point that are in transit at the end of the year (b) Goods received by the company on consignment (c) An estimate of the amount of goods sold by the company that it expects the buyer to return (d) Goods required to be purchased by the company under an unconditional purchase obligationarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Financial Accounting
Accounting
ISBN:9781337272124
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Accounting Changes and Error Analysis: Intermediate Accounting Chapter 22; Author: Finally Learn;https://www.youtube.com/watch?v=c2uQdN53MV4;License: Standard Youtube License