Homework Answers
| FIFO | Weighted average | Difference | |
| January 1 | 7,200,000 | 7,700,000 | 500,000 |
| December 31 | 7,900,000 | 8,300,000 | 400,000 |
Due to change in method from FIFO to Weighted average, Value of beginning and ending inventory will increase by $500,000 and $400,000 respectively.
Due to increase in beginning inventory by $500,000, equity will decrease by $500,000 and due to increase in ending inventory by $400,000, equity will increase by $400,000.
Net effect of accounting change would be = $100,000 decrease in equity.
Net amount to be reported = - $100,000
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valuing inventory to the weighted average method in July 2017. The
cumulative effect on prior years of retrospective application of
the new inventory costing method was determined to be $15,000 net
of $4,000 tax. As prices are decreasing, cost of sales would be
lower and ending inventory higher for the preceding period.
Retained earnings on January 1, 2017 was $241,000.
Here are the choices:
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Goddard Company has used the FIFO method of inventory valuation since it began operations in 2018. Goddard decided to change to the average cost method for determining inventory costs at the beginning of 2021. The following schedule shows year-end inventory balances under the FIFO and average cost methods: Year 2018 2019 2020 FIFO $45,800 80,400 86,200 Average Cost $55,600 71,800 80,400 Required: 1. Ignoring income taxes, prepare the 2021 journal entry to adjust the accounts to reflect the average cost...
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