INTERMEDIATE ACCOUNTING(LL)-W/CONNECT
9th Edition
ISBN: 9781260216141
Author: SPICELAND
Publisher: MCG CUSTOM
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Chapter 20, Problem 20.1E
Change in principle; change in inventory methods
• LO20–2
During 2016 (its first year of operations) and 2017, Batali Foods used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2018, Batali decided to change to the average method for both financial reporting and tax purposes.
Income components before income tax for 2018, 2017, and 2016 were as follows:
Dividends of $20 million were paid each year. Batali’s fiscal year ends December 31.
Required:
- 1. Prepare the
journal entry at the beginning of 2018 to record the change in accounting principle. (Ignore income taxes.) - 2. Prepare the 2018–2017 comparative income statements.
- 3. Determine the balance in
retained earnings at January 1, 2017, as Batali reported previously using the FIFO method. - 4. Determine the adjustment to the January 1, 2017, balance in retained earnings that Batali would include in the 2018–2017 comparative statements of retained earnings or retained earnings column of the statements of shareholders’ equity to revise it to the amount it would have been if Batali had used the average method.
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Students have asked these similar questions
#54
On January 1, 2021, Frost Corp. changed its inventory method to FIFO from LIFO for both financial and income tax reporting purposes. The change resulted in a $900,000 increase in the January 1, 2021 inventory. Assume that the income tax rate for all years is 20%. The cumulative effect of the accounting change should be reported by Frost in its 2021
Question 54 options:
a
retained earnings statement as a $900,000 addition to the beginning balance.
b
income statement as a $720,000 cumulative effect of accounting change.
c
income statement as a $900,000 cumulative effect of accounting change.
d
retained earnings statement as a $720,000 addition to the beginning balance.
3. How much is the cumulative effect of this change that
should be reported in the income statement for the year
ended December 31, 2021?
On December 31, 2021, BLACK MAMBA Company appropriately changed its inventory valuation
method to average cost method from FIFO for financial statement and income tax purposes. The
change will result in a $180,000 increase in the beginning inventory at January 1, 2021. Assume
an income tax rate of 30%.
Your answer
On December 31, 2020 Mega Nhon Company changed its method of accounting for inventory from weighted average cost method to the FIFO method. This change caused the 2020 beginning inventory to increase by ₱630,000. The cumulative effect of this accounting change to be reported for the year ended 12/31/13, assuming a 40% tax rate, is
₱630,000 ₱252,000
₱378,000 ₱0
Chapter 20 Solutions
INTERMEDIATE ACCOUNTING(LL)-W/CONNECT
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