BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

Solutions

Chapter
Section
BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
3 views

In 2020, Frost Company, which began operations in 2018, decided to change from LIFO to FIFO because management believed that FIFO belter represented the flow of their inventory. Management prepared the following analysis showing the effect of this change:

Chapter 22, Problem 8E, In 2020, Frost Company, which began operations in 2018, decided to change from LIFO to FIFO because

Frost reported net income of $2,500,000, $2,400,000, and $2,100,000 in 2018, 2019, and 2020, respectively. The tax rate is 21%.

Required:

  1. 1. Prepare the journal entry necessary to record the change.
  2. 2. What amount of net income would Frost report in 2018, 2019, and 2020?
  3. 3. If Frost’s employees received a bonus of 10% of income before deducting the bonus and income taxes in 2018 and 2019, what would be the effect on net income for 2018, 2019, and 2020?

1.

To determine

Journalize the cumulative effect of the retrospective adjustment of $56,000 on Company F’s prior year income that would be reported in 2020.

Explanation

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

  • Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
  • Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Journalize the cumulative effect of the retrospective adjustment of $56,000 on Company F’s prior year income that would be reported in 2020.

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
  Inventory 56,000 
   Deferred Tax Liability  11,760
   Retained Earnings  44,240
  (Record the cumulative effect of income due to change from LIFO to FIFO)   

Table (1)

Description:

  • Inventory is an asset account...

2.

To determine

Determine the net income that would be reported by Company F for the years 2018, 2019, and 2020.

3.

To determine

Explain the effect of 10% bonus of income on net income of 2018, 2019, and 2020.

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

What is a relationship?

Accounting Information Systems

Explain how absolute advantage and comparative advantage differ.

Essentials of Economics (MindTap Course List)

Explain why product extension and refinement are important.

Foundations of Business (MindTap Course List)

A trade discount is a reduction from the list or catalog price offered to different classes of customers.

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

Which of the following would likely encourage a firm to increase the debt in its capital structure? a. The corp...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)