Intermediate Accounting Plus Mylab Accounting With Pearson Etext -- Access Card Package (2nd Edition)
2nd Edition
ISBN: 9780134833101
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Textbook Question
Chapter 21, Problem 21.1E
Change in Accounting Principle, Inventory. Massi Pharmacies, Inc. started operations on January 1, 2014. The company initially used the average-cost method to value its inventory for both book and tax purposes. Effective January 1, 2018. Massi elected to change its
The following information is available for net income after tax for both the FIFO and the average cost methods
| Net Income | ||
| Year Ended | Average Cost | FIFO |
| December 31, 2014 December 31, 2015 December 31, 2016 December 31, 2017 December 31, 2018 |
$235,000 300,000 310,000 425,500 500,000 |
$310,000 376,000 400,500 535,000 585,000 |
Required (Round to the nearest whole dollar)
Prepare the
Prepare the partial comparative income statements for the 3 years ending December 31, 2018.
Prepare the footnote to disclose the change from the average cost to the FIFO basis. Designate the note as “Note A Change in Method of Accounting for Inventory Valuation."
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Swifty Company began operations on January 1, 2023, and uses the average-cost method of pricing inventory. Management is
contemplating a change in inventory methods for 2026. The following information is available for the years 2023-2025.
2023
2024
2025
(Ignore all tax effects.)
(a)
Net Income Computed Using
FIFO Method
$19,170
20.980
25.060
Average-Cost Method
$15.900
17,880
20,180
LIFO Method
$12.110
Account Titles and Explanation
13.990
17,120
Prepare the journal entry necessary to record a change from the average-cost method to the FIFO method in 2026. (Credit account
titles are automatically indented when the 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. List debit entry before credit entry.)
Debit
Credit
6. On January 1, 2011, Folk Company changed from the average cost method to the FIFO method to account for its inventory. Ending inventory for each method was given below. Folk Company accrues tax expense on December 31 of each year and pays the tax in April of the following year. The income tax rate is 30%. What is the net income to be reported in 2011 after the change to the FIFO inventory method?
a. 1,610,000
b. 2,300,000
c. 1,750,000
d. 1,890,000
The Pyramid Company has used the LIFO method of accounting for inventory during its first two years of operation, 2019 and 2020. At the beginning of 2021, Pyramid decided to change to the average cost method for both tax and financial reporting purposes. The following table presents information concerning the change for 2019–2021. The income tax rate for all years is 25%.
Income before Income Tax
Using Average Cost Method
Using LIFO Method
Difference
IncomeTax Effect
Differenceafter Tax
2019
$
90,000
$
60,000
$
30,000
$
7,500
$
22,500
2020
45,000
36,000
9,000
2,250
6,750
Total
$
135,000
$
96,000
$
39,000
$
9,750
$
29,250
2021
$
51,000
$
46,000
$
5,000
$
1,250
$
3,750
Pyramid issued 50,000 $1 par, common shares for $230,000 when the business began, and there have been no changes in paid-in capital since then. Dividends were not paid the first year, but $10,000 cash…
Chapter 21 Solutions
Intermediate Accounting Plus Mylab Accounting With Pearson Etext -- Access Card Package (2nd Edition)
Ch. 21 - Are accounting changes permitted in financial...Ch. 21 - How do firms report accounting changes under the...Ch. 21 - Prob. 21.3QCh. 21 - How do firms account for changes in accounting...Ch. 21 - Prob. 21.5QCh. 21 - Prob. 21.6QCh. 21 - Prob. 21.7QCh. 21 - Prob. 21.8QCh. 21 - Do accounting errors that self-correct within two...Ch. 21 - Does a firm need to correct an error that...
Ch. 21 - Prob. 21.1MCCh. 21 - Prob. 21.2MCCh. 21 - Prob. 21.3MCCh. 21 - Prob. 21.4MCCh. 21 - Prob. 21.5MCCh. 21 - Prob. 21.1BECh. 21 - Prob. 21.2BECh. 21 - Prob. 21.3BECh. 21 - Prob. 21.4BECh. 21 - Change in Accounting Principle, Long-Term...Ch. 21 - Prob. 21.6BECh. 21 - Prob. 21.7BECh. 21 - Prob. 21.8BECh. 21 - Prob. 21.9BECh. 21 - Prob. 21.10BECh. 21 - Prob. 21.11BECh. 21 - Prob. 21.12BECh. 21 - Prob. 21.13BECh. 21 - Prob. 21.14BECh. 21 - Change in Accounting Principle, Inventory. Massi...Ch. 21 - Change in Accounting Principle, Long-Term...Ch. 21 - Prob. 21.3ECh. 21 - Change in Accounting Principle, Inventory. Winthur...Ch. 21 - Prob. 21.5ECh. 21 - Prob. 21.6ECh. 21 - Error Analysis and Correction. Feinstein and...Ch. 21 - Prob. 21.8ECh. 21 - Prob. 21.9ECh. 21 - Prob. 21.10ECh. 21 - Change in Accounting Principle, Inventory. Second...Ch. 21 - Prob. 21.2PCh. 21 - Prob. 21.3PCh. 21 - Prob. 21.4PCh. 21 - Prob. 21.5PCh. 21 - Change in Estimate, Inventory, Bad Debt Expense....Ch. 21 - Prob. 21.7PCh. 21 - Cases Judgment Case Judgment Case: Materiality and...Ch. 21 - Prob. 1FSCCh. 21 - Surfing the Standards: Change in Accounting...Ch. 21 - Prob. 1BCC
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