Question

Exercise 4-14 (Part Level Submission)

Headland Company began operations in 2015 and for simplicity reasons, adopted weighted-average pricing for inventory. In 2017, in accordance with other companies in its industry, Headland changed its inventory pricing to FIFO. The pretax income data is reported below.

Year		Weighted-Average			FIFO
2015		$390,600			$414,000
2016		410,000			421,500
2017		414,700			473,400

Compute the cumulative effect of the change in accounting principle from weighted-average to FIFO inventory pricing.

Answer 1

Cumulative effect for years prior to 2017
Year	Weighted Average	FIFO	Diffrence	Tax Rate (35%)	Net Effect
2015	390,600.00	414,000.00	234,00.00
2016	410,000.00	421,500.00	11,500.00
Total			34,900.00	12,215.00	22,685.00