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On December 31, 2018 Pharoah Company changed its method of accounting for inventory from weighted average...

On December 31, 2018 Pharoah Company changed its method of accounting for inventory from weighted average cost method to the FIFO method. This change caused the 2018 beginning inventory to increase by $920000. The cumulative effect of this accounting change to be reported for the year ended 12/31/18, assuming a 30% tax rate, is

A.

 $0.

B.

 $644000.

C.

 $276000.

D.

 $920000.
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Answer #1

Answer

--Correct Answer = Option 'B' $ 644,000

--Working

A Decrease in Net Income due to increase in Beginning Inventory $920,000
B = A x 30% Tax Saving on decrease in Net Income $276,000
C = A - B Cumulative Effect $644,000 = Answer
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