2Below is the net income of New Girl Instrument AG, a private company, computed under the two inventory methods using a periodic system.34FIFOAverage Cost5201726,00023,000201830,00025,0007201929,00027,0008202034,00030,000910(Ignore tax considerations.)1112Required13a. Assume that in 2020 New Girl decided to change from the FIFO method to the average-cost method of pricing14inventories. Prepare the journal entry necessary for the change that took place during 2020, and show net income reported15b. Assume that in 2020 New Girl, which had been using the average-cost method since beginning operations in 2017,changed to the FIFO method of pricing inventories. Prepare the journal entry necessary to record the change in 2020, and16show net income reported for 2017, 2018, 2019, and 2020.17

Inventory valuation includes the methods by which the inventory is valued when it is purchased and…

a. Assume that in 2020 New Girl 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 2020, and show net income reported b. Assume that in 2020 New Girl, which had been using the average-cost method since beginning operations in 2017, changed to the FIFO method of pricing inventories. Prepare the journal entry necessary to record the change in 2020, and show net income reported for 2017, 2018, 2019, and 2020.

a. Assume that in 2020 New Girl 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 2020, and show net income reported b. Assume that in 2020 New Girl, which had been using the average-cost method since beginning operations in 2017, changed to the FIFO method of pricing inventories. Prepare the journal entry necessary to record the change in 2020, and show net income reported for 2017, 2018, 2019, and 2020.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter22: Accounting For Changes And Errors.

Section: Chapter Questions

Problem 3MC

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In 2020, Frost Company, which began operations in 2018, decided to change from LIFO to FIFO because management believed that FIFO belter represented the flow of their inventory. Management prepared the following analysis showing the effect of this change: Frost reported net income of 2,500,000, 2,400,000, and 2,100,000 in 2018, 2019, and 2020, respectively. The tax rate is 21%. Required: 1. Prepare the journal entry necessary to record the change. 2. What amount of net income would Frost report in 2018, 2019, and 2020? 3. If Frosts employees received a bonus of 10% of income before deducting the bonus and income taxes in 2018 and 2019, what would be the effect on net income for 2018, 2019, and 2020?
Schmidt Company began operations on January 1, 2018, and used the LIFO inventory method for both financial reporting and income taxes. However, at the beginning of 2020, Schmidt decided to switch to the average cost inventory method for financial and income tax reporting. It had previously reported the following financial statement information for 2019: An analysis of the accounting records discloses the following cost of goods sold under the LIFO and average cost inventory methods: There are no indirect effects of the change in inventory method. Revenues for 2020 total 130,000; operating expenses for 2020 total 30,000. Schmidt is subject to a 21% income tax rate in all years; it pays all income taxes payable in the next quarter. Assume that any deferred tax liability was paid in the subsequent year. Schmidt had 10,000 shares of common stock outstanding during all years; it paid dividends of 1 per share in 2020. At the end of 2020, Schmidt had cash of 15,600, inventory of 34,000, other assets of 76,000, income taxes payable of 4,200, and accounts payable of 3,000. It desires to show financial statements for the current year and previous year in its 2020 annual report. Required: 1. Prepare the journal entry to reflect the change in method at the beginning of 2020. Show supporting calculations. 2. Prepare the 2020 financial statements. Notes to the financial statements are not necessary. Show supporting calculations.
Under U.S. GAAP, LIFO is an acceptable inventory method. Financial statement information for three companies that use LIFO follows. All table numbers are in millions of dollars. Assume these companies adopted IFRS, and thus were required to use FIFO, rather than LIFO. a. Prepare a table with the following columns: (1) Difference between FIFO and LIFO inventory valuation. (2) Revised IFRS net income using FIFO. (3) Difference between FIFO and LIFO inventory valuation as a percent of total current assets. (4) Revised IFRS net income as a percent of the reported net income. b. Complete the table for the three companies. c. For which company would a change to IFRS for inventory valuation have the largest percentage impact on total current assets (Col. 3)? d. For which company would a change to IFRS for inventory valuation have the largest percentage impact on net income (Col. 4)? e. Why might Kroger have a negative impact on net income from using LIFO, while the other two companies have a positive impact on net income from using LIFO?
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.
Below is the net income of New Girl Instrument AG, a private company, computed under the two inventory methods using a periodic system. FIFO Average-Cost 2017 $26,000 $23,000 2018 30,000 25,000 2019 29,000 27,000 2020 34,000 30,000 (ignore tax considerations) Required: a. Assume that in 2020 New Girl 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 2020, and show net income reported for 2017, 2018, 2019, and 2020. b. Assume that in 2020 New Girl, which had been using the average-cost method since beginning operations in 2017, changed to the FIFO method of pricing inventories. Prepare the journal entry necessary to record the change in 2020, and show net income reported for 2017, 2018, 2019, and 2020.
During year 3, Mayorca Corp. decided to change from the FIFOmethod of inventory valuation to the weighted-average method. Inventory balances under each method were as follows: FIFO Weighted-average January 1, year 3 P71,000 P77,000 December 31, year 3 79,000 83,000 Orca’s income tax rate is 30%. In its year 3 financial statements, what amount should Mayorca report as the gain or loss on the cumulative effect of this accounting change?
Blue Devil Inc. uses the LIFO inventory costing method for both tax reporting and financial reporting purposes. Blue Devil’s inventories are reported at $50 million on its balance sheet. In its footnotes, Blue Devil is required to report the amount at which inventories would have been reported under FIFO method. The difference between these two numbers is referred to as what? Group of answer choices LIFO holding gain LCM disclosures LIFO reserve LIFO liquidation
During 2010, Orca Corp. decided to change from the FIFO method of inventory valuation to the weighted-average method. Inventory balances under each method were as follows:FIFO Weighted-averageJanuary 1, 2010 71,000 77,000December 31, 2010 79,000 83,000Orca’s income tax rate is 30%. In its 2010 financial statements, what amount should Orca report as the cumulative effect of this accounting change?a.2,800b.4,000c.4,200d.6,000
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...
During 2021, Gamma Ltd discovered that some of their products sold during 2020 were incorrectly included in inventory as 31 December 2020 at R6 500. Assume a tax rate of 30%.Assume that the prior period error effect is considered to be material.Gamma Ltd.’s accounting records are as follows:2021 2020Sales 208 000 147 000Cost of sales (173 500) (107 000)Profit before tax 35 000 40 000Taxation (10 500) (12 000)Profit 24 500 28 000The profit for 2021 includes R13 500 for the error made in opening inventoryAdditional information:• 2020 opening retained earnings was R40 000 and closing retained earnings was R68 000.• Gamma’s income tax rate was 30% in 2021 as well as in 2020. It had no other income or expenses.• Gamma Ltd has R10 000 of share capital throughout 2020 and 2021, as well as retained earnings.REQUIRED:Disclose the effect of the error in the financial statements for the year ended 31 December 2021
5. During 2020 an entity decided to change from the FIFO method of inventory valuation to the weighted averagemethod. Inventory balances under each method were: FIFO Weighted AverageDecember 31, 2017 4,500,000 5,400,000December 31, 2018 7,800,000 7,100,000December 31, 2019 8,300,000 7,800,000The income tax rate is 30%. What amount should be reported as the effect of this accounting change in thestatement of retained earnings for 2020?a. 350,000 decrease c. 490,000 decreaseb. 350,000 increase d. 490,000 increase
In 2022, Kimberly Corporation changed its method of inventory pricing from LIFO to FIFO. Net income computed on a LIFO as compared to a FIFO basis for the four years involved is: (Ignore income taxes.) LIFO FIFO 2019 $78,600 $87,400 2020 84,000 88,900 2021 86,800 90,600 2022 92,800 92,200 Assume that the company had switched from the average cost method to the FIFO method with net income on an average cost basis for the four years as follows: 2019, $80,400; 2020, $86,120; 2021, $90,300; and 2018, $93,600. Indicate the net income that would be shown on comparative financial statements issued at 12/31/22 for each of the four years under these conditions. Net Income 2019 $ 2020 $ 2021 $ 2022 $