During 2019 (its first year of operations) and 2020, Fieri Foods used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2021, Fieri decided to change to the average method for both financial reporting and tax purposes. Income components before income tax for 2019, 2020, and 2021 were as follows: ($ in millions)201920202021Revenues$550 $560 $590 Cost of goods sold (FIFO) (55) (57) (63)Cost of goods sold (average) (86) (90) (96)Operating expenses (310) (318) (322) Dividends of $36 million were paid each year. Fieri’s fiscal year ends December 31. Required:1. Prepare the journal entry at the beginning of 2021 to record the change in accounting principle. (Ignore income taxes.)2. Prepare the 2021–2020 comparative income statements.3. & 4. Determine the balance in retained earnings at January 1, 2020 as Fieri reported using FIFO method and determine the adjustment of balance in retained earnings as on January 1, 2020 using average method instead of FIFO method.

The income statement is one of the important financial statement of the business which is prepared…

Answered: During 2019 (its first year of…

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 4P: Schmidt Company began operations on January 1, 2018, and used the LIFO inventory method for both...

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During 2019 (its first year of operations) and 2020, Fieri Foods used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2021, Fieri decided to change to the average method for both financial reporting and tax purposes.

Income components before income tax for 2019, 2020, and 2021 were as follows:

($ in millions)	2019	2020	2021
Revenues	$	550		$	560		$	590
Cost of goods sold (FIFO)		(55	)		(57	)		(63	)
Cost of goods sold (average)		(86	)		(90	)		(96	)
Operating expenses		(310	)		(318	)		(322	)

Dividends of $36 million were paid each year. Fieri’s fiscal year ends December 31.

Required:
1. Prepare the journal entry at the beginning of 2021 to record the change in accounting principle. (Ignore income taxes.)
2. Prepare the 2021–2020 comparative income statements.
3. & 4. Determine the balance in retained earnings at January 1, 2020 as Fieri reported using FIFO method and determine the adjustment of balance in retained earnings as on January 1, 2020 using average method instead of FIFO method.

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