Question
Millington Materials is a leading supplier of building equipment, building products, materials & timber for sale,
with over 200 branches across the Mid-South. On January 1, 2016, management decided to change from the LIFO
inventory costing method to the FIFO inventory costing method at each of its outlets.
The following table presents information concerning the change. The income tax rate for all years is 40%.
Income before Income Tax
Average Cost
Difference
FIFO
$8 million
Before 2015
$15 million
$7 million
8 million
5 million
3 million
2015
9 million
1 million
10 million
2016
Required:
1. Prepare the journal entry to record the change in accounting principle. (All tax effects should be reflected in
the deferred tax liability account.)
2. Determine the net income to be reported in the 2016-2015 comparative income statements.
3. Which other 2015 amounts would be reported differently in the 2016-2015 comparative income statements
and 2016-2015 comparative balance sheets than they were reported the previous year?
4. How would the change be reflected in the 2016-2015 comparative statements of shareholders' equity? Cash
dividends were $1 million each year. Assume no dividends were paid prior to 2015.
expand button
Transcribed Image Text:Millington Materials is a leading supplier of building equipment, building products, materials & timber for sale, with over 200 branches across the Mid-South. On January 1, 2016, management decided to change from the LIFO inventory costing method to the FIFO inventory costing method at each of its outlets. The following table presents information concerning the change. The income tax rate for all years is 40%. Income before Income Tax Average Cost Difference FIFO $8 million Before 2015 $15 million $7 million 8 million 5 million 3 million 2015 9 million 1 million 10 million 2016 Required: 1. Prepare the journal entry to record the change in accounting principle. (All tax effects should be reflected in the deferred tax liability account.) 2. Determine the net income to be reported in the 2016-2015 comparative income statements. 3. Which other 2015 amounts would be reported differently in the 2016-2015 comparative income statements and 2016-2015 comparative balance sheets than they were reported the previous year? 4. How would the change be reflected in the 2016-2015 comparative statements of shareholders' equity? Cash dividends were $1 million each year. Assume no dividends were paid prior to 2015.
Expert Solution

Want to see the full answer?

Check out a sample Q&A here
Blurred answer
Students who’ve seen this question also like:
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
Not helpful? See similar books
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Financial Statements And Business Decisions. 1Q
marketing sidebar icon
Want to see this answer and more?
Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*
*Response times may vary by subject and question complexity. Median response time is 34 minutes for paid subscribers and may be longer for promotional offers.

Related Accounting Q&A

Find answers to questions asked by students like you.

Q: Millington Materials is a leading supplier of building equipment, building products, materials, and…

A: Inventory (additional amount due to the new method: $14 million + 6 million) = $20 million Deferred…

Q: On January 1, 2016, LABRYNTH Co. purchased 50,000 units at $10 per unit. During 2016, the entity…

A: Net income of the business means deduction of all expenses from the sales revenue. All expenses…

Q: Aquatic Equipment Corporation decided to switch from the LIFO method of costing inventories to the…

A: 1.

Q: Jack Jones, the materials manager at Precision Enterprises,is beginning to look for ways to reduce…

A: Weekly of Supply can be calculated by below formula: [Raw materials + work in process + finished…

Q: Fantasy Fashions had used the LIFO method of costing inventories, but at the beginning of 2016…

A: Click to see the answer

Q: Dollar General Corporation operates general merchandise stores that feature quality merchandise at…

A: Gross Profit: Gross Profit is the difference between the net sales, and the cost of goods sold.…

Q: Nathan's Grills, Inc., imports and sells premium-quality gas grills. The company had the following…

A: "LIFO" stands for last-in, first-out, meaning that the recently purchased inventory items are…

Q: In an effort to improve its competitive position, Oregon Co. recently introduced a new inventory…

A: Particulars Percentage of Sales Before New System Percentage of Sales After New System Sales…

Q: Avatar Corp. has been the wholesale distributor of auto parts for domestic cars for 20 years. The…

A: 1. Increase in sales= Sale after Increase in Price= 8400 + 10%= 9,240 Sale After Increase in Sales…

Q: Naylor Company had $210,000 of net income in 2016 when the selling price per unit was $150, the…

A: The net profit on sales is calculated as difference between sales revenue and expenses (Fixed and…

Q: The Cena and Lesnar, a retail clothier, has had average sales of $400,000 for the last five years,|…

A: Analysis of Financial Position: Investors assess a company's financial status by reviewing its…

Q: In an effort to improve its competitive position, Oregon Co. recently introduced a new inventory…

A: An inventory control system is a technology that company uses to track goods supply chain. The…

Q: Haymitch Global Industries is a world leading producer of loudspeakers and other electronics…

A: Ratio analysis is a method of measuring the financial position of the organization with different…

Q: QP Corp. sold 4,000 units of its product at $50 per unit in year 2015 and incurred operating…

A: The corporation identify different cost of goods sold (COGS) incurred on goods being sold through…

Q: Irving Corporation runs two stores, one in Medfield and one in Oakland. Operating income for each…

A: a) Result: Thus, as the O store is on losses, and there is a gain in case O is closed, it is good…

Q: During July 2014, Leesburg, Inc., sold 250 units of its product Empire for $4,000. The following…

A: Inventory: Inventory is the goods and material a business holds for sale. There are two methods for…

Q: Pandora Corporation operates several factories in the Midwest that manufacture consumer electronics.…

A: Operating income: Income statement reports revenues and expenses from business operations, and the…

Q: Hubble Space Incorporated has the following data which includes inventory conversion period or ICP…

A: Inventory conversion period is the number of days required to convert raw materials into finished…

Q: Hubble Space Incorporated has the following data which includes inventory conversion period or ICP…

A: Inventory refers to the goods or items which are stored by the business either for selling or for…

Q: Cinnamon Corp. started business in 2007 and uses the weighted average cost method.During 2007, it…

A: Under weighted average cost method, the total cost of goods is divided by total number of units…

Q: The board of directors of Ichiro Corporation is considering whether or not it should instruct the…

A: Cost of good sold = 6000 x $20 + 6000 x $22 + 9000 x $25 = $477,000 Condensed income statement…

Q: Polarix is a retailer of ATVs (all-terrain vehicles) and accessories. An income statement for its…

A: Income Statement: The income statement is an economic statement which measures the financial…

Q: Analyzing Operational Changes Operating results for department B of Delta Company during 2016 are as…

A: The Net Income or loss would be change if there is a change in the sales price, sales volume, cost…

Q: Operating results for department B of Delta Company during 2016 are as follows: Sales   $538,000…

A: New Sales = Sales for 2016 x 110% = $538,000*110% = $591,800 New Cost of goods sold = Cost of goods…

Q: Calculate Sanchez’s operating income if it keeps the Rhode Island store open and opens another store…

A: Click to see the answer

Q: ion apparel reported $100 000 000 in revenues over the last year. On average, over the same year the…

A: Click to see the answer

Q: On the basis of the following data, the general manager of Hawkeye Shoes Inc. decided to discontinue…

A: Differential analysis: Differential analysis refers to the analysis of differential revenue that…

Q: Alexandria Company provided the following data for the current year: Inventory end of the fiscal…

A: Cost of Goods Manufactured is a schedule or statement which shows the total production costs of…

Q: Corporation manufactures housewares products that are sold through a network of external sales…

A: Segregate the variable cost and fixed cost for easy calculation of contribution margin, break even…

Q: Williams & Sons last year reported sales of $39 million, cost of goods sold (COGS) of $30 million,…

A: Inventory turnover ratio can be calculated by cost of goods sold divided by average inventory.

Q: AAA Hardware uses the LIFO method to value its inventory. Inventory at the beginning of the year…

A: FIFO - First in first out LIFO - Last in first out

Q: Tech Company is a medium-sized consumer electronics retailer. The company reported $155,000,000 in…

A: Retailer average margin = (155,000,000 - 110,050,000) / 155,000,000…

Q: Tech Company is a medium-sized consumer electronics retailer. The company reported $155,000,000 in…

A: Inventory cost per unit = Inventory cost / Number of units

Q: South Coast Appliance Store is a small company that has hired you to perform some management…

A: Total variable cost = Cost of goods sold + Commissions Variable cost per unit sold = Total variable…

Q: According to the producer price index database maintained by the Bureau of Labor Statistics, the…

A: The income statement determines the net income of the business by subtracting the total expenses…

Q: Bovine Company, a wholesale distributor of DVDs, has been experiencing losses for some time, as…

A: Contribution margin income statement which is described as the income statement under which all the…

Q: Operating results for department B of Shaw Company during 2016 are as follows: Sales   $755,000…

A: Solution:-a Calculation of Operating results for department "B" while raising selling prices an…

Q: Sizemo Elektroniks sells semiconductors that are used in games and small toys. The company has been…

A: First of all, we need to know what is lower of cost or market value. This is the method of inventory…

Q: The Kroger Company reported the following data in its annual report (in millions).   January 28,…

A: Introduction In Inventory Valuation, LIFO means Last In First Out and FIFO means  First In First…

Q: The Kroger Company reported the following data in its annual report (in millions).   January 28,…

A: Click to see the answer

Q: Jacob’s Landing Inc. has sales of 2,000 for the first quarter of 2019.  The company incurred the…

A: Through CVP analysis, the corporation studies the income statement with the cost prospective where…

Q: HCorporation buys and sells personal computers. The company began operations in 2010 and reported…

A: Inventory is to be valued at cost or realization value whichever is lower.

Q: Martinez Corporation runs two convenience stores, one in Connecticut and one in Rhode Island.…

A: Relevant Cost: It is called relevant because Specific management decision being considered is…

Q: Seizemo Elektroniks sells semiconductors that are used in games and small toys. The company has been…

A: Evaluation is the final step of the formal decision process Evaluating outcomes may help the…

Q: Elegant Decor Company’s management is trying to decide whether to eliminate Department 200, which…

A: Eliminating Expenses:-Expenses which get eliminated with the shutting down of any department of the…

Q: For the Quick Response Company, the inventory turnover is 20 and the average inventory is   BD…

A: The inventory turnover ratio is calculated by dividing the cost of goods sold by the average…

Q: LeBron’s Bookstores has two divisions: books and electronics. The electronics division had another…

A: Income statement:   Income statement is a financial statement that shows the net income or net loss…

Q: In previous year, Seventy Up, Inc. operated at 250,000 units. The following income ment was provided…

A: It is pertinent to note that variable costs are the costs that change with the change in the level…

Q: Hardy is a public listed manufacturing company. Its summarised financial statements for the year…

A: The question is related to Ratio Analysis. We will discuss the financial performance of all the…

Q: LeBron’s Bookstores has two divisions: books and electronics. The electronics division had another…

A: Income statement: When all the costs and expenses are subtracted one by one from the sale, then if…

Knowledge Booster
Recommended textbooks for you
  • FINANCIAL ACCOUNTING
    Accounting
    ISBN:9781259964947
    Author:Libby
    Publisher:MCG
    Accounting
    Accounting
    ISBN:9781337272094
    Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
    Publisher:Cengage Learning,
    Accounting Information Systems
    Accounting
    ISBN:9781337619202
    Author:Hall, James A.
    Publisher:Cengage Learning,
  • Horngren's Cost Accounting: A Managerial Emphasis...
    Accounting
    ISBN:9780134475585
    Author:Srikant M. Datar, Madhav V. Rajan
    Publisher:PEARSON
    Intermediate Accounting
    Accounting
    ISBN:9781259722660
    Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
    Publisher:McGraw-Hill Education
    Financial and Managerial Accounting
    Accounting
    ISBN:9781259726705
    Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
    Publisher:McGraw-Hill Education
  • FINANCIAL ACCOUNTING
    Accounting
    ISBN:9781259964947
    Author:Libby
    Publisher:MCG
    Accounting
    Accounting
    ISBN:9781337272094
    Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
    Publisher:Cengage Learning,
    Accounting Information Systems
    Accounting
    ISBN:9781337619202
    Author:Hall, James A.
    Publisher:Cengage Learning,
    Horngren's Cost Accounting: A Managerial Emphasis...
    Accounting
    ISBN:9780134475585
    Author:Srikant M. Datar, Madhav V. Rajan
    Publisher:PEARSON
    Intermediate Accounting
    Accounting
    ISBN:9781259722660
    Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
    Publisher:McGraw-Hill Education
    Financial and Managerial Accounting
    Accounting
    ISBN:9781259726705
    Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
    Publisher:McGraw-Hill Education