In: Accounting
Fantasy Fashions had used the LIFO method of costing
inventories, but at the beginning of 2018...
Fantasy Fashions had used the LIFO method of costing
inventories, but at the beginning of 2018 decided to change to the
FIFO method. The inventory as reported at the end of 2017 using
LIFO would have been $22 million higher using FIFO. Retained
earnings reported at the end of 2016 and 2017 was $242 million and
$262 million, respectively (reflecting the LIFO method). Those
amounts reflecting the FIFO method would have been $252 million and
$274 million, respectively. 2017 net income reported at the end of
2017 was $30 million (LIFO method) but would have been $32 million
using FIFO. After changing to FIFO, 2018 net income was $38
million. Dividends of $7 million were paid each year. The tax rate
is 40%.
Required: 1. Prepare the journal entry at the beginning of 2018
to record the change in accounting principle.
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General Journal |
Debit |
Credit |
1 |
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2. In the 2018–2017 comparative income statements, what will be
the amounts of net income reported for 2017 and 2018?
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2017 |
2018 |
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($ in millions) |
Net income |
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3. Prepare the 2018–2017 retained earnings column of the
comparative statements of shareholders’ equity.
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FANTASY FASHIONS |
Statement of Shareholders’ Equity |
For the Years Ended Dec. 31, 2018 and
2017 |
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Common Stock |
Additional Paid-in Capital |
Retained Earnings |
Total Shareholders’ Equity |
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($ in millions) |
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Balance at Jan. 1, 2017 |
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Net income |
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Cash dividends |
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Balance at Dec. 31, 2017 |
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$0 |
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Net income |
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Cash dividends |
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Balance at Dec. 31,
2018 |
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$0 |
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