Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
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Textbook Question
Chapter 22, Problem 5E
Fava 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.
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The Pyramid Company has used the LIFO method of accounting for inventory during its first two years of operation, 2019 and 2020. At the beginning of 2021, Pyramid decided to change to the average cost method for both tax and financial reporting purposes. The following table presents information concerning the change for 2019–2021. The income tax rate for all years is 25%.
Income before Income Tax
Using Average Cost Method
Using LIFO Method
Difference
IncomeTax Effect
Differenceafter Tax
2019
$
90,000
$
60,000
$
30,000
$
7,500
$
22,500
2020
45,000
36,000
9,000
2,250
6,750
Total
$
135,000
$
96,000
$
39,000
$
9,750
$
29,250
2021
$
51,000
$
46,000
$
5,000
$
1,250
$
3,750
Pyramid issued 50,000 $1 par, common shares for $230,000 when the business began, and there have been no changes in paid-in capital since then. Dividends were not paid the first year, but $10,000 cash…
During 2019 (its first year of operations) and 2020, Fleri Foods used the FIFO Inventory costing method for both financial reporting and
tax purposes. At the beginning of 2021, Flerl decided to change to the average method for both financial reporting and tax purposes.
Income components before income tax for 2019, 2020, and 2021 were as follows:
($ in millions)
Revenues
Cost of goods sold (FIFO)
Cost of goods sold (average)
Operating expenses
Dividends of $27 million were paid each year. Flerl's fiscal year ends December 31.
Required:
1. Prepare the journal entry at the beginning of 2021 to record the change in accounting principle. (Ignore Income taxes.)
2. Prepare the 2021-2020 comparative Income statements.
3. & 4. Determine the balance in retained earnings at January 1, 2020 as Fieri reported using FIFO method and determine the
adjustment of balance in retained earnings as on January 1, 2020 using average method instead of FIFO method.
Req 1
Complete this question by entering your…
koopman Company began operations on January 1, 2018, and uses the 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: 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.
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...
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