INTERMEDIATE ACCTG W/CONNECT HARDCOVER
9th Edition
ISBN: 9781260359466
Author: SPICELAND
Publisher: MCG
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Textbook Question
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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Your answer
During 2019, DGP Company decided to change from the FIFO inventory valuation to the weighted average method. The
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FIFO Weighted Average
January 1, inventory
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P7,700,000
December 31, inventory
7,900,000
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What amount should be reported in the cumulative effect of the change in accounting policy for 2019?
A P600,000 decrease in retained earnings
B P420,000 decrease in retained earnings
P420,000 increase in retained earnings
(D) P600,000 increase in retained earnings
#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.
Chapter 20 Solutions
INTERMEDIATE ACCTG W/CONNECT HARDCOVER
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