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.

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.

Image Transcription

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.

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