Question

The Pyramid Company has used the LIFO method of accounting for inventory during its first two...

The Pyramid Company has used the LIFO method of accounting for inventory during its first two years of operation, 2019 and 2020. At the beginning of 2021, Pyramid decided to change to the average cost method for both tax and financial reporting purposes. The following table presents information concerning the change for 2019–2021. The income tax rate for all years is 25%. Income before Income Tax Using Average Cost Method Using LIFO Method Difference Income Tax Effect Difference after Tax 2019 $ 93,000 $ 62,000 $ 31,000 $ 7,750 $ 23,250 2020 47,500 38,000 9,500 2,375 7,125 Total $ 140,500 $ 100,000 $ 40,500 $ 10,125 $ 30,375 2021 $ 52,000 $ 46,500 $ 5,500 $ 1,375 $ 4,125 Pyramid issued 59,000 $1 par, common shares for $255,000 when the business began, and there have been no changes in paid-in capital since then. Dividends were not paid the first year, but $12,000 cash dividends were paid in both 2020 and 2021. Required

: 1. Prepare the journal entry at January 1, 2021, to record the change in accounting principle.

2. Prepare the 2021–2020 comparative income statements beginning with income before income taxes.

3. Prepare the 2021–2020 comparative statements of shareholders’ equity. [Hint: The 2019 statements reported retained earnings of $46,500. This is $62,000 – ($62,000 × 25%)].

Homework Answers

Answer #1
S.No General Journal Debit Credit
1 Inventory 40500
Income tax payable 10125
Retained earnings 30375
2
COMPARATIVE INCOME STATEMENTS
2021-20
2021 2020
Income before income taxes 52000 47500
Income tax expense 13000 11875
Net income 39000 35625
Earnings per share 0.66 0.60
39000/59000 0.603813559
3 PYRAMID COMPANY
Statement of Shareholders' Equity
For the Years Ended Dec. 31, 2021,2020
Common stock Additional Paid-inCapital RetainedEarnings Total Shareholders'Equity
Balance at jan 1 2020 59000 196000 69750 324750
Net Income 35625 35625
Cash Dividends -12000 -12000
Balance at Dec. 31,2020 59000 196000 93375 348375
Net income 39000 39000
Cash Dividends -12000 -12000
Balance at Dec. 31,2021 59000 196000 120375 375375
*255000-59000 = 196000
**46,500+23250 = 69750
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The Pyramid Company has used the LIFO method of accounting for inventory during its first two...
The Pyramid Company has used the LIFO method of accounting for inventory during its first two years of operation, 2016 and 2017. At the beginning of 2018, Pyramid decided to change to the average cost method for both tax and financial reporting purposes. The following table presents information concerning the change for 2016–2018. The income tax rate for all years is 40%. Income before Income Tax Average Cost Method LIFO Method Difference Income Difference Tax Effect after Tax 2016 92,400...
Fantasy Fashions had used the LIFO method of costing inventories, but at the beginning of 2021...
Fantasy Fashions had used the LIFO method of costing inventories, but at the beginning of 2021 decided to change to the FIFO method. The inventory as reported at the end of 2020 using LIFO would have been $25 million higher using FIFO. Retained earnings reported at the end of 2019 and 2020 was $245 million and $265 million, respectively (reflecting the LIFO method). Those amounts reflecting the FIFO method would have been $255 million and $277 million, respectively. 2020 net...
During 2019 (its first year of operations) and 2020, Fieri Foods used the FIFO inventory costing...
During 2019 (its first year of operations) and 2020, Fieri Foods used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2021, Fieri decided to change to the average method for both financial reporting and tax purposes. Income components before income tax for 2019, 2020, and 2021 were as follows: ($ in millions) 2019 2020 2021 Revenues $ 580 $ 590 $ 620 Cost of goods sold (FIFO) (58 ) (60 ) (66...
During 2019 (its first year of operations) and 2020, Fieri Foods used the FIFO inventory costing...
During 2019 (its first year of operations) and 2020, Fieri Foods used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2021, Fieri decided to change to the average method for both financial reporting and tax purposes. Income components before income tax for 2019, 2020, and 2021 were as follows: ($ in millions) 2019 2020 2021 Revenues $ 460 $ 470 $ 500 Cost of goods sold (FIFO) (46 ) (48 ) (54...
In 2022, Karen Corporation changed its method of inventory pricing from LIFO to FIFO. Net income...
In 2022, Karen Corporation changed its method of inventory pricing from LIFO to FIFO. Net income computed on a LIFO as compared to a FIFO basis for the four years involved is: (Ignore income taxes.) LIFO FIFO 2019 $78,900 $87,300 2020 84,500 88,800 2021 86,900 90,300 2022 92,900 92,900 Indicate the net income that would be shown on comparative financial statements issued at 12/31/22 for each of the four years, assuming that the company changed to the FIFO method in...
In 2022, Karen Corporation changed its method of inventory pricing from LIFO to FIFO. Net income...
In 2022, Karen Corporation changed its method of inventory pricing from LIFO to FIFO. Net income computed on a LIFO as compared to a FIFO basis for the four years involved is: (Ignore income taxes.) LIFO FIFO 2019 $78,800 $87,200 2020 84,400 88,700 2021 86,300 90,000 2022 92,400 92,500 Indicate the net income that would be shown on comparative financial statements issued at 12/31/22 for each of the four years, assuming that the company changed to the FIFO method in...
The Cecil-Booker Vending Company changed its method of valuing inventory from the average cost method to...
The Cecil-Booker Vending Company changed its method of valuing inventory from the average cost method to the FIFO cost method at the beginning of 2021. At December 31, 2020, inventories were $125,000 (average cost basis) and were $129,000 a year earlier. Cecil-Booker’s accountants determined that the inventories would have totaled $165,000 at December 31, 2020, and $170,000 at December 31, 2019, if determined on a FIFO basis. A tax rate of 25% is in effect for all years. One hundred...
The Cecil-Booker Vending Company changed its method of valuing inventory from the average cost method to...
The Cecil-Booker Vending Company changed its method of valuing inventory from the average cost method to the FIFO cost method at the beginning of 2021. At December 31, 2020, inventories were $117,000 (average cost basis) and were $121,000 a year earlier. Cecil-Booker’s accountants determined that the inventories would have totaled $149,000 at December 31, 2020, and $154,000 at December 31, 2019, if determined on a FIFO basis. A tax rate of 25% is in effect for all years. One hundred...
Fantasy Fashions had used the LIFO method of costing inventories, but at the beginning of 2018...
Fantasy Fashions had used the LIFO method of costing inventories, but at the beginning of 2018 decided to change to the FIFO method. The inventory as reported at the end of 2017 using LIFO would have been $15 million higher using FIFO. Retained earnings reported at the end of 2016 and 2017 was $235 million and $255 million, respectively (reflecting the LIFO method). Those amounts reflecting the FIFO method would have been $245 million and $267 million, respectively. 2017 net...
Fantasy Fashions had used the LIFO method of costing inventories, but at the beginning of 2018...
Fantasy Fashions had used the LIFO method of costing inventories, but at the beginning of 2018 decided to change to the FIFO method. The inventory as reported at the end of 2017 using LIFO would have been $15 million higher using FIFO. Retained earnings reported at the end of 2016 and 2017 was $235 million and $255 million, respectively (reflecting the LIFO method). Those amounts reflecting the FIFO method would have been $245 million and $267 million, respectively. 2017 net...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT