Millington Materials is a leading supplier of buildingequipment, building products,materials & timber for sale, withover 200 branches across the Mid-South. On January 1, 2016,management decided to change from the LIFO inventory costing methodto the FIFO inventory costing method at each of its outlets. Thefollowing table presents information concerning the change. Theincome tax rate for all years is 40%. Income before Income Tax FIFOLIFO Difference Before 2015 $ 15 million $ 8 million $ 7 million2015 8 million 5 million 3 million 2016 10 million 9 million 1million
Required: 1. Prepare the journal entry to record the change inaccounting principle. (All tax effects should be reflected in thedeferred tax liability account.)
2. Determine the net income to be reported in the 2016â2015comparative income statements. (Enter your answers in millionsrounded to 1 decimal place (i.e., 5,500,000 should be entered as5.5).) FOR 2015 & 2016 3.
3. Which other 2015 amounts would be reported differently in the2016â2015 comparative income statements and 2016â2015 comparativebalance sheets than they were reported the previous year? (Selectall that apply.)
1.Earnings per share.
2.Cost of goods sold.
3.Income tax expense (and income before income taxes)
4.Inventory (and total assets)
5.Deferred tax liability (and total liabilities)
6.Retained earnings (and total shareholdersâ equity)
4. Compute the balance of retained earnings on Jan. 1, 2015,Dec. 31, 2015 and Dec. 31, 2016. Cash dividends were $1 millioneach year. (Enter your answers in millions rounded to 1 decimalplace (i.e., 5,500,000 should be entered as 5.5).)
Balance at Jan 1, 2015
Balance at Dec 31, 2015
Balance at Dec 31, 2016
Millington Materials is a leading supplier of buildingequipment, building products,materials & timber for sale, withover 200 branches across the Mid-South. On January 1, 2016,management decided to change from the LIFO inventory costing methodto the FIFO inventory costing method at each of its outlets. Thefollowing table presents information concerning the change. Theincome tax rate for all years is 40%. Income before Income Tax FIFOLIFO Difference Before 2015 $ 15 million $ 8 million $ 7 million2015 8 million 5 million 3 million 2016 10 million 9 million 1million
Required: 1. Prepare the journal entry to record the change inaccounting principle. (All tax effects should be reflected in thedeferred tax liability account.)
2. Determine the net income to be reported in the 2016â2015comparative income statements. (Enter your answers in millionsrounded to 1 decimal place (i.e., 5,500,000 should be entered as5.5).) FOR 2015 & 2016 3.
3. Which other 2015 amounts would be reported differently in the2016â2015 comparative income statements and 2016â2015 comparativebalance sheets than they were reported the previous year? (Selectall that apply.)
1.Earnings per share.
2.Cost of goods sold.
3.Income tax expense (and income before income taxes)
4.Inventory (and total assets)
5.Deferred tax liability (and total liabilities)
6.Retained earnings (and total shareholdersâ equity)
4. Compute the balance of retained earnings on Jan. 1, 2015,Dec. 31, 2015 and Dec. 31, 2016. Cash dividends were $1 millioneach year. (Enter your answers in millions rounded to 1 decimalplace (i.e., 5,500,000 should be entered as 5.5).)
Balance at Jan 1, 2015
Balance at Dec 31, 2015
Balance at Dec 31, 2016
Related questions
Fantasy Fashions had used the LIFO method of costinginventories, but at the beginning of 2016 decided to change to theFIFO method. The inventory as reported at the end of 2015 usingLIFO would have been $27 million higher using FIFO. |
Retained earnings reported at theend of 2014 and 2015 was $247 million and $267 million,respectively (reflecting the LIFO method). Those amounts reflectingthe FIFO method would have been $257 million and $279 million,respectively. 2015 net income reported at the end of 2015 was $35million (LIFO method) but would have been $37 million using FIFO.After changing to FIFO, 2016 net income was $43 million. Dividendsof $9 million were paid each year. The tax rate is 40%. |
| Required: |
| Prepare the journal entry at the beginning of 2016 to record thechange in accounting principle.(If no entry is required fora transaction/event, select "No journal entry required" in thefirst account field. Enter your answers in millions rounded to 1decimal place (i.e., 5,500,000 should be entered as5.5).)
|
| 3. | Prepare the 2016â2015 retained earnings column of thecomparative statements of shareholdersâ equity. (Enter youranswers in millions.) |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
