Fava Company began operations in 2015 and used the LIFO inventory method for both financial reporting...

Fava Company began operations in 2015 and used the LIFO inventory method for both financial reporting and income taxes. At the beginning of 2016, 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 2016 and 2015, respectively. Fava reported expenses (excluding income tax expense) of $125,000 and $120,000 in 2016 and 2015, 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 2015. The tax rate is 30%. Fava has a simple capital structure with 15,000 shares of common stock outstanding during 2015 and 2016. It paid no dividends in either year. Required: 1. Prepare the journal entry to reflect the change. 2. At the end of 2016, prepare the comparative income statements for 2016 and 2015. Notes to the financial statements are not necessary. 3. At the end of 2016, prepare the comparative retained earnings statements for 2016 and 2015.

Solutions

Expert Solution

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Goddard Company has used the FIFO method of inventory valuation since it began operations in 2015....

Goddard Company has used the FIFO method of inventory valuation since it began operations in 2015. Goddard decided to change to the average cost method for determining inventory costs at the beginning of 2018. The following schedule shows year-end inventory balances under the FIFO and average cost methods: Year FIFO Average Cost 2015 $ 47,000 $ 58,000 2016 84,000 73,000 2017 91,000 84,000 Required: 1. Ignoring income taxes, prepare the 2018 journal entry to adjust the accounts to reflect the...

Goddard Company has used the FIFO method of inventory valuation since it began operations in 2015....

Goddard Company has used the FIFO method of inventory valuation since it began operations in 2015. Goddard decided to change to the average cost method for determining inventory costs at the beginning of 2018. The following schedule shows year-end inventory balances under the FIFO and average cost methods: Year FIFO Average Cost 2015 $ 46,300 $ 56,600 2016 81,900 72,300 2017 88,200 81,900 Required: 1. Ignoring income taxes, prepare the 2018 journal entry to adjust the accounts to reflect the...

Calculating LIFO Inventory Values The Mann Corporation began operations in 2015. Information relating to the company’s...

Calculating LIFO Inventory Values The Mann Corporation began operations in 2015. Information relating to the company’s purchases of inventory and sales of products for 2015 and 2016 is presented below. 2015 February 1 Purchase 200 units @ $10 per unit May 1 Sold 120 units @ $25 per unit August 1 Purchase 100 units @ $14 per unit October 1 Sold 130 units @ $25 per unit 2016 February 1 Purchase 100 units @ $16 per unit May 1 Sold...

International Financial Reporting Standards (IFRS) do not permit companies to use the LIFO method for inventory...

International Financial Reporting Standards (IFRS) do not permit companies to use the LIFO method for inventory accounting. In its form 20-F, CNH discloses that it uses the first-in-first-out (FIFO) method to accounting for its inventory. Assume that prices that Caterpillar and CNH pay for inventory typically increase over time. In general terms, how does each company’s inventory accounting method affect its balance sheet and income statement? How would the choice between LIFO and FIFO affect the statement of cash flows,...

International Financial Reporting Standards (IFRS) do not permit companies to use the LIFO method for inventory...

Olson Company adopted the dollar-value LIFO method for inventory valuation at the beginning of 2015. The...

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 Olson's records: Year Current Costs Index 2014 $50,000 100 2015 60,000 108 2016 70,000 115 2017 73,000 125 2018 78,000 135 Required: 1. Calculate the dollar-value LIFO inventory at the end of each year. Do not round your intermediate calculations. Round final answers to the nearest dollar. 2015 2016 2017...

Skysong Company began operations in 2019 and determined its ending inventory at cost and at lower-of-LIFO...

Skysong Company began operations in 2019 and determined its ending inventory at cost and at lower-of-LIFO cost-or-market at December 31, 2019, and December 31, 2020. This information is presented below: Cost Lower-of-Cost-or-Market 12/31/19 $332,620 $312,620 12/31/20 375,420 359,540 (a) Prepare the journal entries required at December 31, 2019, and December 31, 2020, assuming that the inventory is recorded at market, and a perpetual inventory system (cost-of-goods-sold method) is used. (Credit account titles are automatically indented when amount is entered. Do...

Crane Company began operations in 2019 and determined its ending inventory at cost and at lower-of-LIFO...

Crane Company began operations in 2019 and determined its ending inventory at cost and at lower-of-LIFO cost-or-market at December 31, 2019, and December 31, 2020. This information is presented below: Cost Lower-of-Cost-or-Market 12/31/19 $355,290 $336,930 12/31/20 414,220 400,040 (a) Prepare the journal entries required at December 31, 2019, and December 31, 2020, assuming that the inventory is recorded at market, and a perpetual inventory system (cost-of-goods-sold method) is used. (Credit account titles are automatically indented when amount is entered. Do...

Harlequin Co. has used the dollar-value LIFO retail method since it began operations in early 2020...

Harlequin Co. has used the dollar-value LIFO retail method since it began operations in early 2020 (its base year). Its beginning inventory for 2021 was $42,000 at cost and $78,000 at retail prices. At the end of 2021, it computed its estimated ending inventory at retail to be $132,000. Assuming its cost-to-retail percentage for 2021 transactions was 60%, what is the inventory balance that Harlequin Co. would report in its 12/31/2021 balance sheet?

Bartal Co. used the LIFO inventory method. At the beginning of 2019, the company decided to...

Bartal Co. used the LIFO inventory method. At the beginning of 2019, the company decided to change to the FIFO method. For each year reported in the comparability statements, the company makes those statements appear as if FIFO had been applied all along. The following table analyzes the impact of this change on the company’s inventory and income. Years ending Dec 31 ($ in millions) 2019 2018 2017 Previous years COGS (LIFO) $430 $420 $405 $2,000 COGS (FIFO) 370 365...

Subjects