CALCULATOR PRINTER VERSION BACK NEXT Exercise 22-2 Bonita Company began operatio

Question

CALCULATOR PRINTER VERSION BACK NEXT Exercise 22-2 Bonita Company began operations on January 1, 2015, and uses the average-cost method of pricing inventory. Management is contemplating a change in inventory methods for 2018. The following information is available for the years 2015-2017 Net Income Computed Using Average-Cost Method FIFO Method LIFO Method 2015 2016 2017 $15,920 17,990 20,150 $19,170 21,080 24,960 $12,110 13,970 16,950 (a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit (b) Determine net income to be reported for 2015, 2016, and 2017, after giving effect to the change in accounting principle Net Income 2015 s 2016 2017

Explanation / Answer

Average Cost Method FIFO LIFO 2015 $ 15,920.00 $ 19,170.00 $ 12,110.00 2016 $ 17,990.00 $ 21,080.00 $ 13,970.00 2017 $ 20,150.00 $ 24,960.00 $ 16,950.00 $ 54,060.00 $ 65,210.00 $ 43,030.00 a) Average Cost Method to FIFO in 2018 Net Income Using Average Cost Method $   54,060.00 Net Income Using FIFO $   65,210.00 Increase in Income with change in inventory $ (11,150.00) JE Inventory A/c Dr $ 11,150.00 To retained Earnings $   11,150.00 b) Bonita Company will apply the change retrospectively, and restate the financial statements to appear is if the FIFO cost method had been used, as opposed to Average Cost Method. In addition, it would record the cumulative effect of the change in principle by reducing retained earnings and the asset inventory. Net Income (FIFO) 2015 $ 19,170.00 2016 $ 21,080.00 2017 $ 24,960.00 $ 65,210.00 c) Net Income Using LIFO $   43,030.00 Net Income Using FIFO $   65,210.00 Increase in Income with change in inventory $ (22,180.00) JE Inventory A/c Dr $ 22,180.00 To retained Earnings $   22,180.00

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