Problem 19-2A Variable costing income statement and conversion to absorption costing income LO P2, P3

Trez Company began operations this year. During this first year, the company produced 100,000 units and sold 80,000 units. The absorption costing income statement for this year follows.

  
Additional Information

Selling and administrative expenses consist of $450,000 in annual fixed expenses and $1.75 per unit in variable selling and administrative expenses.

The company's product cost of $20 per unit is computed as follows.

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:

Required:
1. Ignoring income taxes, prepare the 2018 journal entry to adjust the accounts to reflect the average cost method.
2. How much higher or lower would cost of goods sold be in the 2017 revised income statement?

• Required 1

Ignoring income taxes, prepare the 2018 journal entry to adjust the accounts to reflect the average cost method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Journal entry worksheet

• Record the adjustment necessary to reflect the average cost method.

Note: Enter debits before credits.

• Required 2

How much higher or lower would cost of goods sold be in the 2017 revised income statement?

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A company has a $170,000 note due in 3 years. How much should be deposited at the end of each quarter in a sinking fund to pay off the note in 3 years if the interest rate is 11% compounded quarterly?

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