Question

The Cecil-Booker Vending Company changed its method of valuing inventory from the average cost method to the FIFO cost method at the beginning of 2021. At December 31, 2020, inventories were $111,000 (average cost basis) and were $115,000 a year earlier. Cecil-Booker’s accountants determined that the inventories would have totaled $137,000 at December 31, 2020, and $142,000 at December 31, 2019, if determined on a FIFO basis. A tax rate of 25% is in effect for all years.

One hundred thousand common shares were outstanding each year. Income from continuing operations was $310,000 in 2020 and $435,000 in 2021. There were no discontinued operations either year.

Required:
1. Prepare the journal entry at January 1, 2021, to record the change in accounting principle. (All tax effects should be reflected in the deferred tax liability account.)
2. Prepare the 2021–2020 comparative income statements beginning with income from continuing operations (adjusted for any revisions). Include per share amounts.

COMPARATIVE INCOME STATEMENTS
	2021	2020
Income from continuing operationsselected answer correct	$475,000selected answer incorrect	$349,000selected answer incorrect
Income tax expenseselected answer correct	139,600selected answer incorrect	190,000selected answer incorrect
Net incomeselected answer correct	$335,400	$159,000
Earnings per common share	$285.00selected answer incorrect	$209.40

No	Date	General Journal	Debit	Credit
1	January 01, 2021	Inventoryselected answer correct	30,000selected answer incorrect	not attempted
		Income tax payableselected answer correct	not attempted	12,000selected answer incorrect
		Retained earningsselected answer correct	not attempted	18,000

Can you tell me where I went wrong

Answer 1

1)
Date	Account Titles and Explanation	Debit (in $)	Credit (in $)
January 1, 2021	Inventory ($ 137,000 (-) $ 111,000)	$ 26,000
	Income Tax Payable                          ($ 26,000 x 25% )		$ 6,500
	Retained earnings     - Bal. Fig.		$ 19,500
	(To record change in accounting principle)

2)
Comparitive Income statement
Particulars	2021	2020
Income before taxes	$ 435,000	$ 309,000
Less: Income tax expenses @ 25%	($ 108,750)	($ 77,250)
Net Income (A)	$ 326,250	$ 231,750
No. of common shares outstanding (B)	100,000 Shares	100,000 Shares
Earnings Per Share (EPS) ( A / B )	$ 3.26	$ 2.32
Workings:
Calcuation of Income Before Taxes for 2020
Increase in Beginning inventory ($ 142,000 (-) $ 115,000)	$ 27,000
Increase In Ending Inventory ($ 137,000 (-) 111,000)	($ 26,000)
Increase in Cost of Good sold	$ 1,000
Income before taxes ( $ 310,000 (-) $ 1,000)	$ 309,000