Rockwell Corporation uses a periodic inventory system and has used the FIFO cost method since inception of the company in 1979. In 2021, the company decided to switch to the average cost method. Data for 2021 are as follows: Beginning inventory, FIFO (4, 300 units @ $35) Purchases: 4,300 units e $41 4,300 units @ $45 $150,500 $176,300 193,500 369 ,800 Cost of goods available for sale $520,300 Sales for 2021 (5,000 units @ $68) $340,000 Additional Information: a. The company's effective income tax rate is 25% for all years. b. If the company had used the average cost method prior to 2021, ending inventory for 2020 would have been $94,600. c. 7,900 units remained in inventory at the end of 2021. Required: 1. Ignoring income taxes, prepare the 2021 journal entry to adjust the accounts to reflect the average cost method. 2. What is the effect of the change in methods on 2021 net income?
Rockwell Corporation uses a periodic inventory system and has used the FIFO cost method since inception of the company in 1979. In 2021, the company decided to switch to the average cost method. Data for 2021 are as follows: Beginning inventory, FIFO (4, 300 units @ $35) Purchases: 4,300 units e $41 4,300 units @ $45 $150,500 $176,300 193,500 369 ,800 Cost of goods available for sale $520,300 Sales for 2021 (5,000 units @ $68) $340,000 Additional Information: a. The company's effective income tax rate is 25% for all years. b. If the company had used the average cost method prior to 2021, ending inventory for 2020 would have been $94,600. c. 7,900 units remained in inventory at the end of 2021. Required: 1. Ignoring income taxes, prepare the 2021 journal entry to adjust the accounts to reflect the average cost method. 2. What is the effect of the change in methods on 2021 net income?
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter6: Cost Of Goods Sold And Inventory
Section: Chapter Questions
Problem 50E: Inventory Costing Methods Crandall Distributors uses a perpetual inventory system and has the...
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Introduction:
VIEWRequirement 1: Journal entry to adjust the accounts to reflect the average cost method:
VIEWComputation of Ending Inventory using Average method:
VIEWComputation of ending inventory using FIFO method:
VIEWComputation of Cost of Goods Sold Under both methods:
VIEWRequirement 2: Effect of change in methods on 2021 Net Income:
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