A21-20 Retrospective Policy Change (LO 21-3, 21-4, 21-6) Armstrong Ltd. has used the average cost (AC) method to determine inventory values since the company was first formed in 20X3. In 20X7, the company decided to switch to the FIFO method, to conform to industry practice. Armstrong will still use average cost for tax purposes. The tax rate is 40%. The following data have been assembled: Net income, as reported, after tax Closing inventory, AC 20X3 $82,000* 20X4 $98,800* Closing inventory, FIFO 51,600 60,200 Dividends 7,600 68,400 86,600 10,600 20X5 $327,600* 84,800 78,200 10,600 20X6 20X7 $385,600* 137,800 127,200 14,600 $182,800 169,200 189,800 20,600 "Using the old policy, average cost **Using the new policy, FIFO. *Using the old policy, average cost **Using the new policy, FIFO. Required: Prepare the comparative retained earnings section of the statement of changes in shareholders' equity for 20X7, reflecting the change in accounting policy.

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A21-20 Retrospective Policy Change (LO 21-3, 21-4, 21-6)
Armstrong Ltd. has used the average cost (AC) method to determine inventory values since the company was first formed in 20X3. In
20X7, the company decided to switch to the FIFO method, to conform to industry practice. Armstrong will still use average cost for tax
purposes. The tax rate is 40%. The following data have been assembled:
Net income, as reported, after tax
Closing inventory, AC
20x3
$82,000*
20X4
$98,800*
20X5
51,600
68,400
Closing inventory, FIFO
Dividends
60,200
7,600
86,600
10,600
$327,600*
84,800
78,200
10,600
20X6
$385,600*
137,800
127,200
14,600
20X7
$182,800**
169,200
189,800
20,600
*Using the old policy, average cost
**Using the new policy, FIFO.
*Using the old policy, average cost
**Using the new policy, FIFO.
Required:
Prepare the comparative retained earnings section of the statement of changes in shareholders' equity for 20X7, reflecting the change
in accounting policy.
ARMSTRONG LIMITED
Comparative Retained Earnings Statement
For the Year Ended 31 December 20X7
20X7
20X6
Opening retained earnings, 1 January
Cumulative effect of a change in accounting principles
Opening retained earnings restated
Earnings
Dividends
Closing retained earnings, 31 December
0
0
$
0 $
0
Transcribed Image Text:A21-20 Retrospective Policy Change (LO 21-3, 21-4, 21-6) Armstrong Ltd. has used the average cost (AC) method to determine inventory values since the company was first formed in 20X3. In 20X7, the company decided to switch to the FIFO method, to conform to industry practice. Armstrong will still use average cost for tax purposes. The tax rate is 40%. The following data have been assembled: Net income, as reported, after tax Closing inventory, AC 20x3 $82,000* 20X4 $98,800* 20X5 51,600 68,400 Closing inventory, FIFO Dividends 60,200 7,600 86,600 10,600 $327,600* 84,800 78,200 10,600 20X6 $385,600* 137,800 127,200 14,600 20X7 $182,800** 169,200 189,800 20,600 *Using the old policy, average cost **Using the new policy, FIFO. *Using the old policy, average cost **Using the new policy, FIFO. Required: Prepare the comparative retained earnings section of the statement of changes in shareholders' equity for 20X7, reflecting the change in accounting policy. ARMSTRONG LIMITED Comparative Retained Earnings Statement For the Year Ended 31 December 20X7 20X7 20X6 Opening retained earnings, 1 January Cumulative effect of a change in accounting principles Opening retained earnings restated Earnings Dividends Closing retained earnings, 31 December 0 0 $ 0 $ 0
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