Pearson eText Intermediate Accounting -- Instant Access (Pearson+)
Pearson eText Intermediate Accounting -- Instant Access (Pearson+)
3rd Edition
ISBN: 9780136946649
Author: Elizabeth Gordon, Jana Raedy
Publisher: PEARSON+
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Chapter 21, Problem 21.1MC
To determine

The correct option.

Given information:

Change in method would result in decrease of cost to $800,000.

Tax rate is 30%.

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On December 31, 20x2, Grayson Inc. changed its inventory valuation method to FIFO from weighted-average. The change will result in an $800,000 increase in the beginning inventory at January 1, 20x2. Assume a 30% income tax rate. The cumulative effect of this accounting change on prior periods that will be reported as an adjustment to the beginning balance of retained earnings is O $560,000 O $800,000 0$-0- O $40,000
During Year 2, Orca Corp. decided to change from the FIFO method of inventory valuation to the weighted-average method. Inventory balances under each method were as follows.                                                   FIFO                Weighted-averageJanuary 1, Year 2               $71,000                   $77,000December 31, Year 2           $79,000                     $83,000Orca's income tax rate is 30%.Orca should report the cumulative effect of this accounting change as a(n) a) adjustment to beginning retained earnings. b) component of income from continuing operations. c) extraordinary item. d) component of income after extraordinary items.
At the beginning of current year, Black Company changed the inventory cost flow method to FIFO from weighted average method for both financial statement and income tax reporting purposes. The change resulted in a P600,000 increase in the beginning inventory. Ignoring income tax, the accounting change should be reported in the current year: a. Income statement as of P600,000 debit b. Retained earnings statement as a P600,000 debit adjustment to the beginning balance. c. Income statement as a P600,000 credit. d. Retained earnings statement as a P600,000 credit adjustment to the beginning balance.
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