Flay Foods has always used the FIFO inventory costing method for both financial

Question

Flay Foods has always used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2018, Flay decided to change to the LIFO method. As a result of the change, net income in 2018 was $80 million. If the company had used LIFO in 2017, its cost of goods sold would have been higher by $6 million that year. Flay's records of inventory purchases and sales are not available for 2016 and several previous years. Last year, Flay reported the following net income amounts in its comparative income statements: ($ in millions) 2017 2016 2015 Net income $84 $82 $80 Required: 1. Prepare the journal entry at the beginning of 2018 to record the change in accounting principle. (lgnore income taxes.) 3. What amounts will Flay report for net income in its 2018-2016 comparative income statements? Complete this question by entering your answers in the tabs below. Required 1Required 3 Prepare the journal entry at the beginning of 2018 to record the change in accounting principle. (Ignore income taxes.) (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).) View transaction list Journal entry worksheet Record the change in accounting principle Note: Enter debits before credits Event General Journal Debit Credit Record entry Clear entry View general journal

Explanation / Answer

Requirement 1: Journal Entry ( $ in Million) Account Tittle Debit Credit Retained Earning (Cost of Goods Sold higher 2017, Net Income Lower) $6 Inventory (Cost of Goods Sold higher, inventory Lower) $6 To Record the changes Requirement -3 $ in Million 2018 2017 2016 Net Income 80 78 82 LIFO LIFO( Revised) FIFO

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