GEN COMBO LOOSELEAF INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD
9th Edition
ISBN: 9781260089042
Author: J. David Spiceland
Publisher: McGraw-Hill Education
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Chapter 20, Problem 20.3P
Change in inventory costing methods; comparative income statements
• LO20–2, LO20–3
Shown below are net income amounts as they would be determined by Weihrich Steel Company by each of three different inventory costing methods ($ in thousands).
Required:
- 1. Assume that Weihrich used FIFO before 2018, and then in 2018 decided to switch to average cost. Prepare the
journal entry to record the change in accounting principle and briefly describe any other steps Weihrich should take to appropriately report the situation. (Ignore income tax effects.) - 2. Assume that Weihrich used FIFO before 2018, and then in 2018 decided to switch to LIFO. Assume accounting records are inadequate to determine LIFO information prior to 2018. Therefore, the 2017 ($540) and pre-2017 ($2,280) data are not available. Prepare the journal entry to record the change in accounting principle and briefly describe any other steps Weihrich should take to appropriately report the situation. (Ignore income tax effects.)
- 3. Assume that Weihrich used FIFO before 2018, and then in 2018 decided to switch to LIFO cost. Weihrich’s records of inventory purchases and sales are not available for several previous years. Therefore, the pre-2017 LIFO information ($2,280) is not available. However, Weihrich does have the information needed to apply LIFO on a prospective basis beginning in 2017. Prepare the journal entry to record the change in accounting principle, and briefly describe any other steps Weihrich should take to appropriately report the situation. (Ignore income tax effects.)
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Accounting for Correction of Errors, Change in Accounting Estimates
and Accounting Policies
Problem 1
CPA Co. has been using the FIFO method of inventory costing since it began operations in 2019. In
2020, the company decided to change to the weighted average method. The following are the December
31 inventory balances under each method:
2019
2020
FIFO
P450,000
895,000
Weighted Average
P560,000
999,000
_1. What is the cumulative effect of this accounting change in the January 1, 2020
Retained Earnings as a result of the accounting change? (Income tax rate is 30%) Indicate whether debit
or credit.
PROBLEM 2: (CHANGE IN ACCOUNTING POLICY)
Shilo Co. has been using the weighted average method of inventory costing since it began
operations in 2018. Shilo Co. has reported the following net income:
Net income Under Weighted Average Method
P 400,000
2018
2019
285,000
320,000
2020
Beginning 2021 the company decided to change the inventory cost formula to FIFO method. The
following are the December 31 inventory balances under each method:
2018
2019
2020
MI, end Per Books
(Weighted Average)
P 180,000
250,000
330,000
MI, End
(FIFO)
P 200,000
310,000
440,000
MI, End Per Books
Understated By
P 20,000
60,000
110,000
Compute for the following:
a. Restated net income for 2019 and 2020 as a result of the change in policy
b. Adjustment to the accumulated profits beginning balance of 2021 as a result of the
change
Question 2
Grouper Company began operations on January 1, 2018, and uses the average-cost method of pricing inventory. Management is contemplating a change in inventory methods for 2021. The following information is available for the years 2018-2020.
2018
2019
2020
Net Income Computed Using
Average-Cost Method FIFO Method
$15,910
$19.060
21,170
25,200
2018
(a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the
account titles and enter O for the amounts.)
Account Titles and Explanation
2019
18,170
$
19,880
$
(b) Determine net income to be reported for 2018, 2019, and 2020, after giving effect to the change in accounting principle.
2020 $
LIFO Method
$12,010
14,110
17,040
Net Income
Debit
Account Titles and Explanation
Credit
(c) Assume Grouper Company used the LIFO method instead…
Chapter 20 Solutions
GEN COMBO LOOSELEAF INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD
Ch. 20 - Prob. 20.1QCh. 20 - There are three basic accounting approaches to...Ch. 20 - Prob. 20.3QCh. 20 - Lynch Corporation changes from the...Ch. 20 - Sugarbaker Designs Inc. changed from the FIFO...Ch. 20 - Most changes in accounting principles are recorded...Ch. 20 - Southeast Steel, Inc., changed from the FIFO...Ch. 20 - Prob. 20.8QCh. 20 - Its not easy sometimes to distinguish between a...Ch. 20 - For financial reporting, a reporting entity can be...
Ch. 20 - Prob. 20.11QCh. 20 - Describe the process of correcting an error when...Ch. 20 - Prob. 20.13QCh. 20 - If it is discovered that an extraordinary repair...Ch. 20 - Prob. 20.15QCh. 20 - Change in inventory methods; FIFO method to the...Ch. 20 - Change in inventory methods; average cost method...Ch. 20 - Change in inventory methods; FIFO method to the...Ch. 20 - Change in depreciation methods LO203 Irwin, Inc.,...Ch. 20 - Prob. 20.5BECh. 20 - Book royalties LO204 Three programmers at Feenix...Ch. 20 - Warranty expense LO204 In 2017, Quapau Products...Ch. 20 - Change in estimate; useful life of patent LO204...Ch. 20 - Prob. 20.9BECh. 20 - Error correction LO206 In 2018, internal auditors...Ch. 20 - Prob. 20.11BECh. 20 - Error correction LO206 In 2018, the internal...Ch. 20 - Change in principle; change in inventory methods ...Ch. 20 - Change in principle; change in inventory methods ...Ch. 20 - Change from the treasury stock method to retired...Ch. 20 - Change in principle; change to the equity method ...Ch. 20 - Prob. 20.5ECh. 20 - FASB codification research LO202 Access the FASB...Ch. 20 - Change in principle; change in inventory cost...Ch. 20 - Change in inventory methods; FIFO method to the...Ch. 20 - Change in inventory methods; FIFO method to the...Ch. 20 - Change in depreciation methods LO203 For...Ch. 20 - Change in depreciation methods LO203 The Canliss...Ch. 20 - Book royalties LO204 Dreighton Engineering Group...Ch. 20 - Loss contingency LO204 The Commonwealth of...Ch. 20 - Warranty expense LO204 Woodmier Lawn Products...Ch. 20 - Prob. 20.15ECh. 20 - Accounting change LO204 The Peridot Company...Ch. 20 - Change in estimate; useful life and residual value...Ch. 20 - Classifying accounting changes LO201 through...Ch. 20 - Error correction; inventory error LO206 During...Ch. 20 - Error corrections; investment LO206 Required: 1....Ch. 20 - Prob. 20.21ECh. 20 - Prob. 20.22ECh. 20 - Prob. 20.23ECh. 20 - Inventory errors LO206 Indicate with the...Ch. 20 - Classifying accounting changes and errors LO201...Ch. 20 - Change in inventory costing methods; comparative...Ch. 20 - P 20-2 Change in principle; change in method of...Ch. 20 - Change in inventory costing methods; comparative...Ch. 20 - Change in inventory methods LO202 The Rockwell...Ch. 20 - Change in inventory methods LO202 Fantasy...Ch. 20 - Change in principle; change in depreciation...Ch. 20 - Depletion; change in estimate LO204 In 2018, the...Ch. 20 - Accounting changes; six situations LO201, LO203,...Ch. 20 - Prob. 20.9PCh. 20 - Inventory errors LO206 You have been hired as the...Ch. 20 - Error correction; change in depreciation method ...Ch. 20 - Accounting changes and error correction; seven...Ch. 20 - Prob. 20.13PCh. 20 - Prob. 20.14PCh. 20 - Prob. 20.15PCh. 20 - Prob. 20.16PCh. 20 - Prob. 20.17PCh. 20 - Integrating Case 201 Change to dollar-value LIFO ...Ch. 20 - Prob. 20.2BYPCh. 20 - Prob. 20.3BYPCh. 20 - Analysis Case 204 Change in inventory methods;...Ch. 20 - Prob. 20.5BYPCh. 20 - Prob. 20.6BYPCh. 20 - Analysis Case 208 Various changes LO201 through...Ch. 20 - Analysis Case 209 Various changes LO201 through...Ch. 20 - Prob. 20.10BYPCh. 20 - Prob. 20.11BYPCh. 20 - Prob. 20.12BYPCh. 20 - Prob. 1CCTC
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