Koopman Company began operations on January 1, 2012, and uses the FIFO inventory
ID: 2422001 • Letter: K
Question
Koopman Company began operations on January 1, 2012, and uses the FIFO inventory method for financial reporting and the average cost inventory method for income taxes. At the beginning of 2014, Koopman decided to switch to the average cost inventory method for financial reporting. It had previously reported the following financial statement information for 2013:
An analysis of the accounting records discloses the following cost of goods sold under the FIFO and average cost inventory methods:
There are no indirect effects of the change in inventory method. Revenues for 2014 total $130,000; operating expenses for 2014 total $30,000. Koopman is subject to a 30% income tax rate in all years; it pays the income taxes payable of a current year in the first quarter of the next year. Koopman had 10,000 shares of common stock outstanding during all years; it paid dividends of $1 per share in 2014. At the end of 2014, Koopman had cash of $10,000, inventory of $24,000, other assets of $70,800, accounts payable of $4,500, and income taxes payable of $6,000. It desires to show financial statements for the current year and previous year in its 2014 annual report.
2. Prepare the comparative income statements.
Round EPS to the nearest cent
Explanation / Answer
(All amounts in $) In case the method of inventory valuation is changed from FIFO to Average Cost in 2013, the Income Statement for 2013 will be reinstated as follows for Koopman : Revenues 100000 Retained Earnings Statement for 2013 Retained Earnings Statement for 2014 Cost of Goods Sold -69000 Gross Profit 31000 Beginning Retained Earnings 15000 Beginning Retained Earnings 13200 Operating Expenses -25000 Add : Net Income 4200 Add : Net Income 14000 Income before Income Taxes 6000 19200 27200 Income Tax Expense -1800 Less : Dividends -6000 Less : Dividends -10000 Net Income 4200 Ending Retained Earnings 13200 Ending Retained Earnings 17200 Earnings per Share 0.42 Balance Sheet for 2013 Cash 9000 Accounts Payable 3000 Inventory 29000 Deferred Tax Liability 4800 Other Assets 64100 Common Stock, no par 82000 Income Tax Refund 900 Retained Earnings 13200 103000 103000 Comparative Income Statements for 2013 and 2014 for Koopman Comparative Balance Sheets for 2013 and 2014 for Koopman 2013 2014 2013 2014 2013 2014 Revenues 100000 130000 Cash 9000 10000 Accounts Payable 3000 4500 Cost of Goods Sold -69000 -80000 Income Tax Payable 6300 Gross Profit 31000 50000 Inventory 29000 34000 Deferred Tax Liability 4800 4800 Operating Expenses -25000 -30000 Other Assets 64100 70800 Common Stock, no par 82000 82000 Income before Income Taxes 6000 20000 Income Tax Refund 900 Retained Earnings 13200 17200 Income Tax Expense -1800 -6000 Net Income 4200 14000 103000 114800 103000 114800 Earnings per Share 0.42 1.4
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