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In: Accounting
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.
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ekkarill92 answered 1 year agoRelated 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...
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,...
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...
n 2017, Frost Company, which began operations in 2015, decided to change from LIFO to FIFO...
n 2017, Frost Company, which began operations in 2015, decided
to change from LIFO to FIFO because management believed that FIFO
better represented the flow of their inventory. Management prepared
the following analysis showing the effect of this change:
Ending Inventory
LIFO
FIFO
Cumulative Difference
12/31/2015
$240,000
$273,000
$33,000
12/31/2016
245,000
301,000
56,000
12/31/2017
256,000
328,000
72,000
Frost reported net income of $2,500,000, $2,400,000, and
$2,100,000 in 2015, 2016, and 2017, respectively. The tax rate is
30%.
Required:
1.
Prepare...
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?
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