Millington Materials is a leading supplier of building equipment, building products, materials, and timber for sale, with over 200 branches across the Mid-South. On January 1, 2024, management decided to change from the average inventory costing method to the FIFO inventory costing method at each of its outlets. The following table presents information concerning the change. The income tax rate for all years is 25%. Income before Income Tax FIFO Average Cost Difference Before 2023 $ 34 million $ 27 million $ 7 million 2023 46 million 24 million 22 million 2024 29 million 28 million 1 million Required: 1. Prepare the journal entry to record the change in accounting principle. 2. Determine the net income to be reported in the 2024–2023 comparative income statements. 4. Indicate the affect of the change in the 2024–2023 comparative statements of shareholders’ equity assuming cash dividends were $11.50 million each year and that no dividends were paid prior to 2023.

Millington Materials is a leading supplier of building equipment, building products, materials, and timber for sale, with over 200 branches across the Mid-South. On January 1, 2024, management decided to change from the average inventory costing method to the FIFO inventory costing method at each of its outlets. The following table presents information concerning the change. The income tax rate for all years is 25%. Income before Income Tax FIFO Average Cost Difference Before 2023 $ 34 million $ 27 million $ 7 million 2023 46 million 24 million 22 million 2024 29 million 28 million 1 million Required: 1. Prepare the journal entry to record the change in accounting principle. 2. Determine the net income to be reported in the 2024–2023 comparative income statements. 4. Indicate the affect of the change in the 2024–2023 comparative statements of shareholders’ equity assuming cash dividends were $11.50 million each year and that no dividends were paid prior to 2023.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter22: Accounting For Changes And Errors.

Section: Chapter Questions

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

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	Income before Income Tax
Before 2023	$ 34	million	$ 27	million	$ 7	million
2023	46	million	24	million	22	million
2024	29	million	28	million	1	million

Required:

1. Prepare the journal entry to record the change in accounting principle.

2. Determine the net income to be reported in the 2024–2023 comparative income statements.

4. Indicate the affect of the change in the 2024–2023 comparative statements of shareholders’ equity assuming cash dividends were $11.50 million each year and that no dividends were paid prior to 2023.

Definition Definition Method of recording financial transactions in the book of original entry by debiting and crediting the accounts affected by a transaction using the golden rules of accrual accounting.

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