The Rockwell Corporation uses a periodic inventory system and has used the FIFO
ID: 2485562 • Letter: T
Question
The Rockwell Corporation uses a periodic inventory system and has used the FIFO cost method since inception of the company in 1977. In 2016, the company decided to change to the average cost method. Data for 2016 are as follows:
If the company had used the average cost method prior to 2016, ending inventory for 2015 would have been $310,500.
Prepare the journal entry at the beginning of 2016 to record the change in principle. (If no entry is required for a particular event, select "No journal entry required" in the first account field.)
In the 2016–2014 comparative financial statements, what will be the amounts of cost of goods sold and inventory reported for 2016?
The Rockwell Corporation uses a periodic inventory system and has used the FIFO cost method since inception of the company in 1977. In 2016, the company decided to change to the average cost method. Data for 2016 are as follows:
Explanation / Answer
1
Journal entry at the beginning of 2016 to record the change in principle.
Date
Accounts title and explanations
Debit
Credit
Jan. 1 , 2016
Retained earnings
$ 27,600
Inventories
$27,600
(Being inventories adjusted for method change)
Workings:
Calculation of adjustment amount :
Beginning inventory, FIFO (Jan 1 , 2016)
$ 338,100
Less: Beginning inventory, Average cost method (Jan 1 , 2016)
$ 310,500
Adjustment Amount
$ 27,600
2
Calculation of cost of goods sold and inventory reported for 2016 using Average cost method (periodic inventory system):
Units
Rate
Cost
Beginning inventory, Average cost method (Jan 1 , 2016)
6,900
$ 45
$ 310,500
Purchases
6,900
$ 55
$ 379,500
Purchases
6,900
$ 59
$ 407,100
Cost of goods available for sale
20,700
$1,097,100
Average cost per unit = $1097100 / 20700 Units
$ 53
Ending inventory
8,900
$ 53
$ 471,700
Cost of Good sold
11,800
$ 53
$ 625,400
(20700-6900)
1
Journal entry at the beginning of 2016 to record the change in principle.
Date
Accounts title and explanations
Debit
Credit
Jan. 1 , 2016
Retained earnings
$ 27,600
Inventories
$27,600
(Being inventories adjusted for method change)
Workings:
Calculation of adjustment amount :
Beginning inventory, FIFO (Jan 1 , 2016)
$ 338,100
Less: Beginning inventory, Average cost method (Jan 1 , 2016)
$ 310,500
Adjustment Amount
$ 27,600
2
Calculation of cost of goods sold and inventory reported for 2016 using Average cost method (periodic inventory system):
Units
Rate
Cost
Beginning inventory, Average cost method (Jan 1 , 2016)
6,900
$ 45
$ 310,500
Purchases
6,900
$ 55
$ 379,500
Purchases
6,900
$ 59
$ 407,100
Cost of goods available for sale
20,700
$1,097,100
Average cost per unit = $1097100 / 20700 Units
$ 53
Ending inventory
8,900
$ 53
$ 471,700
Cost of Good sold
11,800
$ 53
$ 625,400
(20700-6900)
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.