Toolum Corporation began operations on January 1, 2020, and uses the average- cost method of pricing inventory. Management is contemplating a change in inventory methods for 2023. The following information is available for the years 2020-2022 2020 2021 2022 Net Income using Average Cost Method 20,000 15.000 25.000 FIFO Method 22,000 20,000 30,000 (Ignore all tax effects.) a. Prepare the journal entry necessary to record a change from the average-cost method to the FIFO method in 2023. Show all workings b. Determine net income to be reported for 2020, 2021 and 2022, after givina effect to the change in accounting policy.

Toolum Corporation began operations on January 1, 2020, and uses the average- cost method of pricing inventory. Management is contemplating a change in inventory methods for 2023. The following information is available for the years 2020-2022 2020 2021 2022 Net Income using Average Cost Method 20,000 15.000 25.000 FIFO Method 22,000 20,000 30,000 (Ignore all tax effects.) a. Prepare the journal entry necessary to record a change from the average-cost method to the FIFO method in 2023. Show all workings b. Determine net income to be reported for 2020, 2021 and 2022, after givina effect to the change in accounting policy.

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 6E: Berg Company began operations on January 1, 2019, and uses the FIFO method in costing its raw...

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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?
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.
Koopman 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.
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.
Grimstad 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?
Olson Company adopted the dollar-value LIFO method for inventory valuation at the beginning of 2015. The following information about the inventory at the end of each year is available from Olsons records: Required: 1. Calculate the dollar-value LIFO inventory at the end of each year. 2. Prepare the appropriate disclosures for the 2021 annual report if Olson uses current cost internally and LIFO for financial reporting.
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.
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 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.
Toolum Corporation began operations on January 1, 2020, and uses the average-cost method of pricing inventory. Management is contemplating a change ininventory methods for 2023. The following information is available for the years2020–2022 Requirements:(Ignore all tax effects.)a. Prepare the journal entry necessary to record a change from the average-costmethod to the FIFO method in 2023. Show all workings b. Determine net income to be reported for 2020, 2021, and 2022, after givingeffect to the change in accounting policy.
2. Toolum Corporation began operations on January 1, 2020, and uses the average- cost method of pricing inventory. Management is contemplating a change in inventory methods for 2023. The following information is available for the years 2020–2022 Net Income using Average Cost Method FIFO Method 2020 20,000 22,000 2021 15,000 20,000 2022 25,000 30,000 Requirements: (Ignore all tax effects.) a. Prepare the journal entry necessary to record a change from the average-cost method to the FIFO method in 2023. Show all workings b. Determine net income to be reported for 2020, 2021 and 2022, after giving effect to the change in accounting policy.
Swifty Company began operations on January 1, 2023, and uses the average-cost method of pricing inventory. Management is contemplating a change in inventory methods for 2026. The following information is available for the years 2023-2025. 2023 2024 2025 (Ignore all tax effects.) (a) Net Income Computed Using FIFO Method $19,170 20.980 25.060 Average-Cost Method $15.900 17,880 20,180 LIFO Method $12.110 Account Titles and Explanation 13.990 17,120 Prepare the journal entry necessary to record a change from the average-cost method to the FIFO method in 2026. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List debit entry before credit entry.) Debit Credit
Waterway Company began operations on January 1, 2018, and uses the average-cost method of pricing inventory. Management is contemplating a change in inventory methods for 2021. The following information is available for the years 2018–2020. Net Income Computed Using Average-Cost Method FIFO Method LIFO Method 2018 $16,110 $18,880 $12,030 2019 17,960 20,820 13,910 2020 20,000 24,850 17,140 (a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit Enter an account title Enter a debit amount Enter a credit amount Enter an account title Enter a debit amount Enter a credit amount (b) Determine net income to be…