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 thousand common shares were outstanding each year.
Income from continuing operations was $370,000 in 2020 and $495,000
in 2021. There were no discontinued operations either year.
Required:
1. Prepare the journal entry at January 1, 2021,
to record the change in accounting principle. (All tax effects
should be reflected in the deferred tax liability account.)
2. Prepare the 2021–2020 comparative income
statements beginning with income from continuing operations
(adjusted for any revisions). Include per share amounts.
Get Answers For Free
Most questions answered within 1 hours.