Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 22, Problem 3MC
To determine
Find the correct option, the option which explains the way in which the effect of adjustment of inventory would be reported by Company B, if the company changes the accounting principle from LIFO to FIFO.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
In 2021, CPS Company changed its method of valuing inventory from the FIFO method to the average cost method. At December 31, 2020, CPS’s inventories were $32 million (FIFO). CPS’s records indicated that the inventories would have totaled $23.8 million at December 31, 2020, if determined on an average cost basis. Required:1. Prepare the journal entry to record the adjustment. (Ignore income taxes.) (Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5). If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
In 2021, CPS Company changed its method of valuing inventory from the FIFO method to the average cost method. At December 31, 2020, CPS’s inventories were $32 million (FIFO). CPS’s records indicated that the inventories would have totaled $23.8 million at December 31, 2020, if determined on an average cost basis.
Required:1. Prepare the journal entry to record the adjustment. (Ignore income taxes.)2. Briefly describe other steps CPS should take to report the change.
In 2021, the Barton and Barton Company changed its method of valuing inventory from the FIFO method to the average cost method. At December 31, 2020, B & B’s inventories were $31.8 million (FIFO). B & B’s records indicated that the inventories would have totaled $23.7 million at December 31, 2020, if determined on an average cost basis. Ignoring income taxes, what journal entry will B & B use to record the adjustment in 2021? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)
Chapter 22 Solutions
Intermediate Accounting: Reporting And Analysis
Ch. 22 - Prob. 1GICh. 22 - Prob. 2GICh. 22 - Prob. 3GICh. 22 - What steps are necessary to apply the...Ch. 22 - Prob. 5GICh. 22 - Prob. 6GICh. 22 - Prob. 7GICh. 22 - Prob. 8GICh. 22 - Define a change in estimate. What is the proper...Ch. 22 - Prob. 10GI
Ch. 22 - How is a change in depreciation method accounted...Ch. 22 - Describe a change in a reporting entity. How does...Ch. 22 - Prob. 13GICh. 22 - Prob. 14GICh. 22 - Prob. 15GICh. 22 - Prob. 16GICh. 22 - Prob. 17GICh. 22 - Prob. 18GICh. 22 - Prob. 19GICh. 22 - Prob. 20GICh. 22 - The cumulative effect of an accounting change...Ch. 22 - When a change in accounting principle is made...Ch. 22 - Prob. 3MCCh. 22 - A change in the expected service life of an asset...Ch. 22 - During 2019, White Company determined that...Ch. 22 - Generally, how should a change in accounting...Ch. 22 - On January 2, 2017, Garr Company acquired...Ch. 22 - A company has included in its consolidated...Ch. 22 - Shannon Corporation began operations on January 1,...Ch. 22 - Shannon Corporation began operations on January 1,...Ch. 22 - Prob. 1RECh. 22 - Heller Company began operations in 2019 and used...Ch. 22 - Refer to RE22-2. Assume the pretax cumulative...Ch. 22 - Refer to RE22-2. Assume Heller Company had sales...Ch. 22 - Bloom Company had beginning unadjusted retained...Ch. 22 - Suppose that Blake Companys total pretax...Ch. 22 - Bliss Company owns an asset with an estimated life...Ch. 22 - At the end of 2019, Framber Company received 8,000...Ch. 22 - At the end of 2019, Cortex Company failed to...Ch. 22 - At the end of 2019, Jayrad Company paid 6,000 for...Ch. 22 - At the end of 2019, Manny Company recorded its...Ch. 22 - Abrat Company failed to accrue an allowance for...Ch. 22 - The following are independent events: a. Changed...Ch. 22 - Prob. 2ECh. 22 - The following are independent events: a. A...Ch. 22 - Change in Inventory Cost Flow Assumption At the...Ch. 22 - Fava Company began operations in 2018 and used the...Ch. 22 - Berg Company began operations on January 1, 2019,...Ch. 22 - Prob. 7ECh. 22 - In 2020, Frost Company, which began operations in...Ch. 22 - Gundrum Company purchased equipment on January 1,...Ch. 22 - Prob. 10ECh. 22 - On January 1, 2014, Klinefelter Company purchased...Ch. 22 - The following are independent errors made by a...Ch. 22 - The following are independent errors made by a...Ch. 22 - Refer to the information in E22-13. Required:...Ch. 22 - The following are independent errors: a. In...Ch. 22 - Dudley Company failed to recognize the following...Ch. 22 - Prob. 1PCh. 22 - Prob. 2PCh. 22 - Koopman Company began operations on January 1,...Ch. 22 - Schmidt Company began operations on January 1,...Ch. 22 - Prob. 5PCh. 22 - Kraft Manufacturing Company manufactures two...Ch. 22 - Jackson Company has decided to issue common stock...Ch. 22 - At the beginning of 2020, Holden Companys...Ch. 22 - At the end of 2020, while auditing Sandlin...Ch. 22 - At the beginning of 2020, Tanham Company...Ch. 22 - A review of Anderson Corporations books indicates...Ch. 22 - Prob. 12PCh. 22 - Gray Companys financial statements showed income...Ch. 22 - Prob. 14PCh. 22 - There are three types of accounting changes:...Ch. 22 - Prob. 2CCh. 22 - Berkeley Company, a manufacturer of many different...Ch. 22 - When the FASB issues a new generally accepted...Ch. 22 - It is important in accounting theory to be able to...Ch. 22 - Prob. 6CCh. 22 - Prob. 7CCh. 22 - Prob. 8CCh. 22 - Prob. 9CCh. 22 - Sometimes a business entity may change its method...
Knowledge Booster
Similar questions
- Schmidt Company began operations on January 1, 2018, and used the LIFO inventory method for both financial reporting and income taxes. However, at the beginning of 2020, Schmidt decided to switch to the average cost inventory method for financial and income tax reporting. It had previously reported the following financial statement information for 2019: An analysis of the accounting records discloses the following cost of goods sold under the LIFO and average cost inventory methods: There are no indirect effects of the change in inventory method. Revenues for 2020 total 130,000; operating expenses for 2020 total 30,000. Schmidt is subject to a 21% income tax rate in all years; it pays all income taxes payable in the next quarter. Assume that any deferred tax liability was paid in the subsequent year. Schmidt had 10,000 shares of common stock outstanding during all years; it paid dividends of 1 per share in 2020. At the end of 2020, Schmidt had cash of 15,600, inventory of 34,000, other assets of 76,000, income taxes payable of 4,200, and accounts payable of 3,000. It desires to show financial statements for the current year and previous year in its 2020 annual report. Required: 1. Prepare the journal entry to reflect the change in method at the beginning of 2020. Show supporting calculations. 2. Prepare the 2020 financial statements. Notes to the financial statements are not necessary. Show supporting calculations.arrow_forwardKoopman Company began operations on January 1, 2018, and uses they FIFO inventory method for financial reporting and the average cost inventory method for income taxes. At the beginning of 2020, Koopman decided to switch to the average cost inventory method for financial reporting. It had previously reported the following financial statement information for 2019: An analysis of the accounting records discloses the following cost of goods sold under the FIFO and average cost inventory methods: There are no indirect effects of the change in inventory method. Revenues for 2020 total 130,000; operating expenses for 2020 total 30,000. Koopman is subject to a 21% income tax rate in all years; it pays the income taxes payable of a current year in the first quarter of the next year. Koopman had 10,000 shares of common stock outstanding during all years; it paid dividends of 1 per share in 2020. At the end of 2020, Koopman had cash of 10,000, inventory of 24,000, other assets of 70,800, accounts payable of 4,500, and income taxes payable of 6,000. It desires to show financial statements for the current year and previous year in its 2020 annual report. Required: 1. Prepare the journal entry to reflect the change in methods at the beginning of 2020. Show supporting calculations. 2. Prepare the 2020 financial statements. Notes to the financial statements are not necessary. Show supporting calculations.arrow_forwardFava Company began operations in 2018 and used the LIFO inventory method for both financial reporting and income taxes. At the beginning of 2019, the anticipated cost trends in the industry had changed, so that it adopted the FIFO method for both financial reporting and income taxes. Fava reported revenues of 300,000 and 270,000 in 2019 and 2018, respectively. Fava reported expenses (excluding income tax expense) of 125,000 and 120,000 in 2019 and 2018, which included cost of goods sold of 55,000 and 45,000, respectively. An analysis indicates that the FIFO cost of goods sold would have been lower by 8,000 in 2018. The tax rate is 21%. Fava has a simple capital structure with 15,000 shares of common stock outstanding during 2018 and 2019. It paid no dividends in either year. Required: 1. Prepare the journal entry to reflect the change. 2. At the end of 2019, prepare the comparative income statements for 2019 and 2018. Notes to the financial statements are not necessary. 3. At the end of 2019, prepare the comparative retained earnings statements for 2019 and 2018.arrow_forward
- Refer to the information provided in RE8-4. If Paul Corporations inventory at January 1, 2019, had a cost and net realizable value of 300,000, prepare the journal entry to record the reductions to NRV for Paul Corporation assuming that Paul uses a periodic inventory system and the allowance method. Paul Corporation uses FIFO and reports the following inventory information: Assuming Paul uses a perpetual inventory system and the direct method, prepare the journal entry to record the write-down of inventory.arrow_forwardAt the end of 2019, Manny Company recorded its ending inventory at 350,000 based on a physical count. During 2020, the company discovered that the correct inventory value at the end of 2019 should have been 400,000 because it made a counting error. Upon discovery of this error in 2020, what correcting journal entry will Manny make? Ignore income taxes.arrow_forwardRefer to the information provided in RE8-4. If Paul Corporations inventory at January 1, 2019, had a cost and net realizable value of 300,000, prepare the journal entry to record the reductions to NRV for Paul Corporation assuming that Paul uses a periodic inventory system and the direct method. Paul Corporation uses FIFO and reports the following inventory information: Assuming Paul uses a perpetual inventory system and the direct method, prepare the journal entry to record the write-down of inventory.arrow_forward
- Heller Company began operations in 2019 and used the LIFO method to compute its 300,000 cost of goods sold for that year. At the beginning of 2020, Heller changed to the FIFO method. Heller determined that its cost of goods sold under FIFO would have been 250,000 in 2019. For 2020, Hellers cost of goods sold under FIFO was 360,000, while it would have been 410,000 under LIFO. Heller is subject to a 21% income tax rate. Compute the cumulative effect of the retrospective adjustment on prior years income (net of taxes) that Heller would report on its retained earnings statement for 2020.arrow_forwardGrimstad Company uses FIFO for internal reporting purposes and LIFO for financial reporting and income tax purposes. At the end of 2019, the following information was obtained from the inventory records: Required: 1. Prepare the necessary adjusting journal entry assuming that Grimstad converts the accounts to LIFO at the end of 2019. 2. Indicate how Grimstad would disclose the inventory value on its comparative balance sheets prepared at the end of 2019. 3. Next Level By how much would Grimstads cost of goods sold differ in 2019 if it used FIFO for external reporting?arrow_forwardIn 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: 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. Prepare the journal entry necessary to record the change. 2. What amount of net income would Frost report in 2018, 2019, and 2020? 3. If Frosts 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?arrow_forward
- Berg Company began operations on January 1, 2019, and uses the FIFO method in costing its raw materials inventory. During 2020, management is contemplating a change to the LIFO method and is interested in determining what effect such a change will have on net income. Accordingly, the following information has been developed: Required: What is the effect on income before income taxes in 2020 of a change to the LIFO method?arrow_forwardThe following items were included in Venicio Corporations inventory account on December 31, 2019: What amount should Venicio report as inventory at December 31, 2019? a. 21,000 b. 20,400 c. 26,000 d. 35,000arrow_forwardCompany Edgar reported the following cost of goods sold but later realized that an error had been made in ending inventory for year 2021. The correct inventory amount for 2021 was 12,000. Once the error is corrected, (a) how much is the restated cost of goods sold for 2021? and (b) how much is the restated cost of goods sold for 2022?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College