Rockwell Corporation uses a periodic inventory system and has used the FIFO cost

Question

Rockwell Corporation uses a periodic inventory system and has used the FIFO cost method since inception of the company in 1976. In 2013, the company decided to switch to the average cost method. Data for 2013 are as follows: Beginning inventory, FIFO (6,000 units @ $26) $ 156,000 Purchases: 6,000 units @ $32 $ 192,000 6,000 units @ $36 216,000 408,000 Cost of goods available for sale $ 564,000 Sales for 2013 (7,000 units @ $76) $ 532,000 Additional Information: a. The company's effective income tax rate is 40% for all years. b. If the company had used the average cost method prior to 2013, ending inventory for 2012 would have been $114,000. c. 11,000 units remained in inventory at the end of 2013. Required: 1. Prepare the 2013 journal entry to adjust the accounts to reflect the average cost method

What is the effect of the change in methods on 2013 net income?

2.

What is the effect of the change in methods on 2013 net income?

Explanation / Answer

1. Prepare the 2013 journal entry to adjust the accounts to reflect the average cost method

What is the effect of the change in methods on 2013 net income?

Net income Decrease by 9000

workings

2012 Ending Inventory under FIFO 1,56,000 2012 Ending Inventory under average cost 1,14,000 Decrease in ending inventory from change 42,000 Decrease in ending inventory from change $ 42,000If ending inventory would have decreased, net income and retained
earnings would have decreased. The reduction in retained earnings
would reflect the after tax amount, i.e 42,000*(1-.40) DR CR Retained earnings ($42000 x 60%) 25200 DTA ($42000x 40%) 16800 Inventory 42000

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.