a. Prepare income statements under average-cost and FIFO for 2017, 2018, and 2019.
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Ferguson Co. decides at the beginning of 2019 to adopt the FIFO method of
average-cost method for financial reporting since its inception on January 1, 2017, and had maintained records adequate
to apply the FIFO method retrospectively. Ferguson concluded that FIFO is the preferable inventory method because it
reflects the current cost of inventory on the
change in accounting policy on inventory and cost of goods sold.
| INVENTORY DETERMINED BY | COST OF GOODS SOLD DETERMINED BY | |||
| DATE | AVERAGE-COST METHOD | FIFO METHOD | AVERAGE-COST METHOD | FIFO METHOD |
| January 7, 2017 | P 0.00 | P 0.00 | P 0.00 | P 0.00 |
| December 31, 2017 | 100.00 | 80.00 | 800.00 | 820.00 |
| December 31, 2018 | 200.00 | 240.00 | 1,000.00 | 940.00 |
| December 31, 2019 | 320.00 | 390.00 | 1,130.00 | 1,100.00 |
The balance of
For each year presented, sales are P4,000 and operating expenses are P1,000. Ferguson provides two years of financial
statements. Earnings per share information is not required
Required:
a. Prepare income statements under average-cost and FIFO for 2017, 2018, and 2019.
b. Prepare income statements reflecting the retrospective application of the accounting change from the average-cost
method to the FIFO method for 2019 and 2018.
c. Prepare the note to the financial statements describing the change in method of inventory valuation. In the note, indicate
the income statement line items for 2019 and 2018 that were affected by the change in accounting policy.
d. Prepare comparative retained earnings statements for 2018 and 2019 under FIFO.
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