Below is the net income of Blossom Instrument Co., a private corporation, comput

Question

Below is the net income of Blossom Instrument Co., a private corporation, computed under the three inventory methods using a periodic system.

FIFO

Average Cost

LIFO

(Ignore tax considerations.)

(a) Assume that in 2018 Blossom decided to change from the FIFO method to the average-cost method of pricing inventories. Prepare the journal entry necessary for the change that took place during 2018, and show net income reported for 2015, 2016, 2017, and 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

2018

2017

2016

2015

(b) Assume that in 2018 Blossom, which had been using the LIFO method since incorporation in 2015, changed to the FIFO method of pricing inventories. Prepare the journal entry necessary to record the change in 2018 and show net income reported for 2015, 2016, 2017, and 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

2018

2017

2016

2015

FIFO

Average Cost

LIFO

2015 $24,400 $21,300 $18,800 2016 27,600 22,600 19,300 2017 28,600 26,500 23,200 2018 36,300 32,100 28,100

Explanation / Answer

(a) Assume that in 2018 Blossom decided to change from the FIFO method to the average-cost method of pricing inventories. Prepare the journal entry necessary for the change that took place during 2018, and show net income reported for 2015, 2016, 2017, and 2018.

Account Titles and Explanation

Debit

Credit

Retained Earning

$10,200

           Inventory

$10,200

2012           $3100                   ($24400 - 21300)

2013           $5000                   ($27600 - 22600)

2014           $2100                   ($28600 - 26500)

TOTAL      $10200

Net income reported for 2015, 2016, 2017, and 2018

2018 = $32100   

2017 = $26500

2016 = $22600

2015 = $21300

(b) Assume that in 2018 Blossom, which had been using the LIFO method since incorporation in 2015, changed to the FIFO method of pricing inventories. Prepare the journal entry necessary to record the change in 2018 and show net income reported for 2015, 2016, 2017, and 2018.

Account Titles and Explanation

Debit

Credit

Inventory

$19,300

        Retained Earning

$19,300

2012           $5600                   ($24400 - 18800)

2013           $8300                   ($27600 - 19300)

2014           $5400                   ($28600 – 23200)

TOTAL      $19300

Net income reported for 2015, 2016, 2017, and 2018

2018 = $36300   

2017 = $28600

2016 = $27600

2015 = $24400

Account Titles and Explanation

Debit

Credit

Retained Earning

$10,200

           Inventory

$10,200

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