Flay Foods has always used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2021, Flay decided to change to the LIFO method. As a result of the change, net income in 2021 was $76 million. If the company had used LIFO in 2020, its cost of goods sold would have been higher by $7 million that year. Flay's records of inventory purchases and sales are not available for 2019 and several previous years. Last year, Flay reported the following net income amounts in its comparative income statements: ($ in millions) 2018 2019 2020 Net income $76 $78 $80 Required: 1. Prepare the journal entry at the beginning of 2021 to record the change in accounting principle. (Ignore income taxes.) 3. What amounts will Flay report for net income in its 2019-2021 comparative income statements?

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.
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Problem 5E: Fava Company began operations in 2018 and used the LIFO inventory method for both financial...
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Flay Foods has always used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2021,
Flay decided to change to the LIFO method. As a result of the change, net income in 2021 was $76 million. If the company had used
LIFO in 2020, its cost of goods sold would have been higher by $7 million that year. Flay's records of inventory purchases and sales
are not available for 2019 and several previous years. Last year, Flay reported the following net income amounts in its comparative
income statements:
($ in millions)
Net income
2018 2019
2020
$76 $78 $80
Required:
1. Prepare the journal entry at the beginning of 2021 to record the change in accounting principle. (Ignore income taxes.)
3. What amounts will Flay report for net income in its 2019-2021 comparative income statements?
Transcribed Image Text:Flay Foods has always used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2021, Flay decided to change to the LIFO method. As a result of the change, net income in 2021 was $76 million. If the company had used LIFO in 2020, its cost of goods sold would have been higher by $7 million that year. Flay's records of inventory purchases and sales are not available for 2019 and several previous years. Last year, Flay reported the following net income amounts in its comparative income statements: ($ in millions) Net income 2018 2019 2020 $76 $78 $80 Required: 1. Prepare the journal entry at the beginning of 2021 to record the change in accounting principle. (Ignore income taxes.) 3. What amounts will Flay report for net income in its 2019-2021 comparative income statements?
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