(b) Determine net income to be reported for 2015, 2016, and 2017, after giving e

Question

(b) Determine net income to be reported for 2015, 2016, and 2017, after giving effect to the change in accounting principle.

Net Income

(c) Assume Indigo Company used the LIFO method instead of the average cost method during the years 2015–2017. In 2018, Indigo changed to the FIFO method. Prepare the journal entry necessary to record the change in principle.

Net Income Computed Using Average-Cost Method FIFO Method LIFO Method 2015 $16,010 $19,100 $11,930 2016 18,160 20,830 14,040 2017 20,150 25,140 16,860

Explanation / Answer

(a).

Accounts Title & Explanation

Debit

Credit

Inventory

$10750

     Retained Earnings

$10750

(For recording impact of change in ineventory method)

Explanation;

1. Change in inventory will be calculated as follow;

($19100 - $16010) + ($20830 - $18160) + ($25140 - $20150)

$3090 + $2670 + $4990

= $10750

(b).

2015

2016

2017

Net income (FIFO method)

$19100

$20830

$25140

(C).

Accounts Title & Explanation

Debit

Credit

Inventory

$22240

     Retained Earnings

$22240

(For recording impact of change in ineventory method)

Explanation;

1. Change in inventory will be calculated as follow;

($19100 - $11930) + ($20830 - $14040) + ($25140 - $16860)

$7170 + $6790 + $8280

= $22240

Accounts Title & Explanation

Debit

Credit

Inventory

$10750

     Retained Earnings

$10750

(For recording impact of change in ineventory method)

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