"On December 31, Year 18, Oriole, Inc. appropriately changed its inventory valuation method to FIFO cost...
"On December 31, Year 18, Oriole, Inc. appropriately changed its inventory valuation method to FIFO cost from weighted-average cost for financial statement and income tax purposes. The change will result in a $3650000 increase in the beginning inventory at January 1, Year 18. Assume a 30% income tax rate. The cumulative effect of this accounting change on beginning retained earnings is"
|
$0.00 |
||
|
"$1,095,000.00 " |
||
|
"$2,555,000.00 " |
||
|
"$3,650,000.00 " |
Homework Answers
ANSWER
The change in inventory valuation method will result in a $3,650,000 increase in the beginning inventory at January 1, 2018.
Due to increase in inventory value, income will increase by$3,650,000
Income tax rate = 30%
Hence, income tax expense = 3,650,000 x 30%
= $1,095,000
The cumulative effect of this accounting change on beginning retained earnings = 3,650,000(Increase in income) - $1,095,000(Income tax expense)
= $2,555,000
Hence, correct option is (c)
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