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.

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.

Principles of Cost Accounting

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter2: Accounting For Materials

Section: Chapter Questions

Problem 11E: Renfro, Inc. was franchised on January 1, 2016. At the end of its third year of operations, December...

See similar textbooks

Similar questions

A large manufacturer of truck and car tires recently changed its cost-flow assumption method for inventories at the beginning of 2014. The manufacturer has been in operation for almost 40 years, and for the last decade it has reported moderate growth in revenues. The firm changed from the LIFO method to the FIFO method and reported the following information (amounts in millions): REQUIRED Calculate the inventory turnover ratio for 2014 using the LIFO and FIFO cost-flow assumption methods. Explain why the costs assigned to inventory under LIFO at the end of 2013 and 2014 are so much less than they are under FIFO.
Click the Chart sheet tab. On the screen is a column chart showing ending inventory costs. During a deflationary period, which bar (A, B, or C) represents FIFO costing, which represents LIFO costing, and which represents weighted average? Explain your reasoning. On January 4 following year-end, Rio Enterprises received a shipment of 60 units of product costing 580 each. These units had been ordered by Del in December and had been shipped to him on December 27. They were shipped FOB shipping point. Revise the FIFOLIFO3 worksheet to include this shipment. Preview the printout to make sure that the worksheet will print neatly on one page, and then print the worksheet. Save the completed file as FIFOLIFOT. Using the FIFOLIFO3 file, prepare a 3-D bar (stacked) chart showing the cost of goods sold and ending inventory under each of the four inventory cost flow assumptions. No Chart Data Table is needed. Use the values in the Calculations Section of the worksheet for your chart. Enter your name somewhere on the chart. Save the file again as FIFOLIFO3. Print the chart.
Denali Company manufactures household products such as windows, light fixtures, ladders, and work tables. During the year it produced 10,000 Model 10X windows but only sold 5,000 units at $40 each. The remaining units cannot be sold through normal channels. Cost for inventory purposes on December 31 included the following data on the unsold units: Denali can sell the 5,000 windows at a liquidation price of $20.00 per window, but it will incur a packaging and shipping charge of $7.50 per window. Required: Identify the relevant costs and revenues for the liquidation sale alternative. Is Denali better off accepting the liquidation price rather than doing nothing? Assume that Model 10X can be reprocessed to another size window, Model 20X, which will require the same amount of labor and overhead as was required to initially produce, but sells for only $33. Determine the most profitable course of action—liquidate or reprocess.
Habicht Company was formed in 2018 to produce a single product. The production and sales for the next 4 years were as follows: Required: 1. Determine the gross profit for each year under each of the following periodic inventory methods: a. FIFO b. LIFO c. Average cost (Round unit costs to 3 decimal places.) 2. Next Level Explain whether the companys return on assets (net income divided by average total assets) would be higher under FIFO or LIFO.
For each of the following independent situations, calculate the missing values: 1. The Belen plant purchased 78,300 of direct materials during June. Beginning direct materials inventory was 2,500, and direct materials used in production were 73,500. What is ending direct materials inventory? 2. Forster Company produced 14,000 units at an average cost of 5.90 each. The beginning inventory of finished goods was 3,422. (The average unit cost was 5.90.) Forster sold 14,120 units. How many units remain in ending finished goods inventory? 3. Beginning work in process (WIP) was 116,000, and ending WIP was 117,300. If total manufacturing costs were 349,000, what was the cost of goods manufactured? 4. If the conversion cost is 84 per unit, the prime cost is 55, and the manufacturing cost per unit is 105, what is the direct materials cost per unit? 5. Total manufacturing costs for August were 412,000. Prime cost was 64,000, and beginning WIP was 76,000. The cost of goods manufactured was 434,000. Calculate the cost of overhead for August and the cost of ending WIP.
Ottis, Inc., uses 640,000 plastic housing units each year in its production of paper shredders. The cost of placing an order is 30. The cost of holding one unit of inventory for one year is 15.00. Currently, Ottis places 160 orders of 4,000 plastic housing units per year. Required: 1. Compute the annual ordering cost. 2. Compute the annual carrying cost. 3. Compute the cost of Ottiss current inventory policy. Is this the minimum cost? Why or why not?
Fava Company began operations in 2018 and used the LIFO inventory method for both financial reporting and income taxes. At the beginning of 2019, the anticipated cost trends in the industry had changed, so that it adopted the FIFO method for both financial reporting and income taxes. Fava reported revenues of 300,000 and 270,000 in 2019 and 2018, respectively. Fava reported expenses (excluding income tax expense) of 125,000 and 120,000 in 2019 and 2018, which included cost of goods sold of 55,000 and 45,000, respectively. An analysis indicates that the FIFO cost of goods sold would have been lower by 8,000 in 2018. The tax rate is 21%. Fava has a simple capital structure with 15,000 shares of common stock outstanding during 2018 and 2019. It paid no dividends in either year. Required: 1. Prepare the journal entry to reflect the change. 2. At the end of 2019, prepare the comparative income statements for 2019 and 2018. Notes to the financial statements are not necessary. 3. At the end of 2019, prepare the comparative retained earnings statements for 2019 and 2018.
Shaquille Corporation began the current year with inventory of 50,000. During the year, its purchases totaled 110,000. Shaquille paid freight charges of 8,500 for those purchases. At the end of the year, Shaquille had inventory of 47,800. Prepare a schedule to determine Shaquille's cost of goods sold for the current year.
Millington Materials is a leading supplier of building equipment, building products, materials, and timber for sale, with over 200 branches across the Mid-South. On January 1, 2021, management decided to change from the average 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 25%. Income before Income Tax FIFO Average Cost Difference Before 2020 $30 million $16 million $14 million 2020 16 10 6 2021 20 18 2 Required:1. Prepare the journal entry to record the change in accounting principle.2. Determine the net income to be reported in the 2021–2020 comparative income statements.4. Indicate the affect of the change in the 2021–2020 comparative statements of shareholders’ equity assuming cash dividends were $2 million each year and that no dividends were paid prior to 2020.
Millington Materials is a leading supplier of building equipment, building products, materials, and timber for sale, with over 200 branches across the Mid-South. On January 1, 2024, management decided to change from the average 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 25%. Income before Income Tax FIFO Average Cost Difference Before 2023 $ 34 million $ 27 million $ 7 million 2023 46 million 24 million 22 million 2024 29 million 28 million 1 million Required: 1. Prepare the journal entry to record the change in accounting principle. 2. Determine the net income to be reported in the 2024–2023 comparative income statements. 4. Indicate the affect of the change in the 2024–2023 comparative statements of shareholders’ equity assuming cash dividends were $11.50 million each year and that no dividends were paid prior to 2023.
The Cecil-Booker Vending Company changed its method of valuing inventory from the average cost method to the FIFO cost method at the beginning of 2016. At December 31, 2015, inventories were $120,000 (average cost basis) and were $124,000 a year earlier. Cecil-Booker’s accountants determined that the inventories would have totaled $155,000 at December 31, 2015, and $160,000 at December 31, 2014, if determined on a FIFO basis. A tax rate of 40% is in effect for all years. One hundred thousand common shares were outstanding each year. Income from continuing operations was $400,000 in 2015 and $525,000 in 2016. There were no discontinued operations either year. 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. Prepare the 2016–2015 comparative income statements beginning with income from continuing operations. Include per share amounts.
Aquatic Equipment Corporation decided to switch from the LIFO method of costing inventories to the FIFO method at the beginning of 2016. The inventory as reported at the end of 2015 using LIFO would have been $60,000 higher using FIFO. Retained earnings at the end of 2015 was reported as $780,000 (reflecting the LIFO method). The tax rate is 40%. Required: 1. Calculate the balance in retained earnings at the time of the change (beginning of 2016) as it would have been reported if FIFO had been used in prior years. 2. Prepare the journal entry at the beginning of 2016 to record the change in accounting principle.