On December 31, 2021 Dean Company changed its method of accounting for inventory from weighted average cost method to the FIFO method. This change caused the 2021 beginning inventory to increase by $960,000. The cumulative effect of this accounting change to be reported for the year ended 12/31/21, assuming a 20% tax rate, is $192,000. $960,000. $0. $768,000.
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Question 54
$192,000.
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$960,000.
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$0.
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$768,000.
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- Refer to RE22-2. Assume Heller Company had sales revenue of 510,000 in 2019 and 650,000 in 2020. Prepare Hellers partial income statements (through gross profit) for 2019 and 2020. RE22-2 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.Effects of an Inventory Error The income statements for Graul Corporation for the 3 years ending in 2019 appear below. During 2019, Graul discovered that the 2017 ending inventory had been misstated due to the following two transactions being recorded incorrectly. a. A purchase return of inventory costing $42,000 was recorded twice. b. A credit purchase of inventory' made on December 20 for $28,500 was not recorded. The goods were shipped F.O.B. shipping point and were shipped on December 22, 2017. Required: 1. Was ending inventory for 2017 overstated or understated? By how much? 2. Prepare correct income statements for all 3 years. 3. CONCEPTUAL CONNECTION Did the error in 2017 affect cumulative net income for the 3-year period? Explain your response. 4. CONCEPTUAL CONNECTION Why was the 2019 net income unaffected?Refer to RE22-2. Assume the pretax cumulative effect adjustment is 50,000. Prepare the journal entry that Heller Company would make at the beginning of 2020 to record the cumulative effect of the change from LIFO to FIFO. RE22-2 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.
- Effects of an Error in Ending Inventory Waymire Company prepared the partial income statements presented below for 2019 and 2018. During 2020, Waymires accountant discovered that ending inventory for 2018 had been understated by $6,500. Required: 1. Prepare corrected income statements for 2019 and 2018. 2. Prepare a schedule showing each financial statement item affected by the error and the amount of the error for that item (ignore the effect of income taxes). Indicate whether each error is an overstatement (+) or an understatement (-).(Appendix 8.1) Inventory Write-Down The following are the inventories for the years 2019, 2020, and 2021 for Parry Company: Required: 1. Assume the inventory that existed at the end of each year was sold in the subsequent year. Prepare journal entries to record the lower of cost or net realizable value for each of the following alternatives: a. allowance method, periodic inventory system b. direct method, periodic inventory system 2. Next Level Refer to your answer for P8-2. How does the use of the periodic inventory system affect the write-down of inventory to the lower of cost or net realizable value?LIFO and Inventory Pools On January 1, 2016, Grover Company changed its inventory cost flow method to the LIFO cost method from the FIFO cost method for its raw materials inventory. It made the change for both financial statement and income tax reporting purposes. Grover uses the multiple-pools approach under which it groups substantially identical raw materials into LIFO inventory pools. It uses weighted average costs in valuing annual incremental layers. The composition of the December 31, 2018, inventory for the Class F inventory pool is as follows: Inventory transactions for the Class F inventory pool during 2019 were as follows: On March 2, 2019, 4,800 units were purchased at a unit cost of 13.50 for 64,800. On September 1, 2019, 7,200 units were purchased at a unit cost of 14.00 for 100,800. A total of 15,000 units were used for production during 2019. The following transactions for the Class F inventory pool took place during 2020: On January 11, 2020, 7,500 units were purchased at a unit cost of 14.50 for 108,750. On May 14, 2020, 5,500 units were purchased at a unit cost of 15.50 for 85,250. On December 29, 2020, 7,000 units were purchased at a unit cost of 16.00 for 112,000. A total of 16,000 units were used for production during 2020. Required: 1. Prepare a schedule to compute the inventory (units and dollar amounts) of the Class F inventory pool at December 31, 2019. Show supporting computations in good form. 2. Prepare a schedule to compute the cost of Class F raw materials used in production for the year ended December 31, 2019. 3. Prepare a schedule to compute the inventory (units and dollar amounts) of the Class F inventory pool at December 31, 2020. Show supporting computations in good form.
- Inventory Pools Stone Shoe Company adopted dollar-value LIFO on January 1, 2019. The company produces four products and uses a single inventory pool. The companys beginning inventory consists of the following: During 2019, the company has the following purchases and sales: Required: 1. Compute the dollar-value LIFO cost of the ending inventory. Round the cost index to 4 decimal places and all other amounts to the nearest dollar. 2. Next Level By how much would the companys gross profit differ if it had used four pools instead of a single pool?The 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. 35,000(Appendix 8.1) Inventory Write-Down Frost Companys inventory records tor the years 2019 and 2020 reveal the cost and market of the January 1, 2019, inventory to be 125,000. On December 31, 2019, the cost of inventory was 130,000, while the market value was only 128,000. The December 31, 2020, market value of inventory was 140,000, and the cost was only 135,000. Frost uses a periodic inventory system. Purchases for 2019 were 100,000 and for 2020 were 110,000. Required: 1. Assume the inventory that existed at the end of 2019 was sold in 2020. Prepare the journal entries at the end of 2019 and 2020 to record the lower of cost or net realizable value under the (a) allowance method and (b) direct method. 2. Prepare the cost of goods sold section of the income statement and show how the company would record the inventory on its balance sheet for 2019 and 2020 under the (a) allowance method and (b) direct method. 3. Next Level Refer to your answer for P8-3. How does the use of a periodic inventory system versus a perpetual inventory system affect the valuation of inventory and the amount reported as income?