Question

Tim mattke company began operation in 2018 and for simplicity reason adopted weighted-average pricing for inventory. In 2020, in accordance with other companies in its industry, mattke changed its inventory pricing to FIFO. The pretax income data is reported below

A. what is Mattkes net income in 2020? Assime a 20% rate in all years

B.compute the cummulative effect of the change in accounting principle from weighted-average to FIFo inventory pricing

C. show comparative income statements for Tim Mattke company, beginning with income before income tax as presented on the 2020 income statement

on Round to decimal prices E4.14 0) (Change in Accounting Principle) Tim Mattice Company began operations in 2018 and for simplicity reasons, adopted weighted average pricing for inventory. In 2020, in accordance with other companies in its industry, Mattke changed its inventory pricing to FIFO. The pretax income data is reported below. Weighted Year Average FIFO 2018 $370,000 $395,000 2019 390,000 430,000 2020 410,000 450,000 Instructions a. What is Mattke's net income in 2020? Assume a 20% tax rate in all years. b. Compute the cumulative effect of the change in accounting principle from weighted average to FIFO inventory pricing. c. Show comparative income statements for Tim Mattke Company, beginning with income before in come tax, as presented on the 2020 income statement

Answer 1

Pretax income in 2020 under FIFO : 450,000 Less: Income Tax Expense 4-50,000 x 20 100 - 90000 IA Net Income in 2020 = 450,000 - 90000 : 360000 Net Income in 2020 = 360,000 Pretan Income under weighted method: 2018 370,000 2019 390.000 2020/410,ooo 117,0000 Total Pretax Income under weighted average method (a) = 117,0000 Pretax Income undey Fifo: 2018 395,000 2019/430,000 2020450, God 127500 Total Pretare Income under FIFO method (6)= - 127,5000

Net Effect (b-a) :127, 5000 - 117,0000 = 105,000 ? Income before income taxe 2020 2019 2018 450,000 430,000 395,000 Less : Income tax expense 2020= 450,ooo x 20 100 • 360.0oo [Net Income = 360,000 2019 : 430, 600 x 20 - 869,00 Net Income - 860,000 2018 - 395,000 x 20 :79900 loo Net Income = 790.00