Exercise 22-2 Net Income Computed Using Average-Cost Method FIFO Method LIFO Met
ID: 2546918 • Letter: E
Question
Exercise 22-2
Net Income Computed Using
Average-Cost Method
FIFO Method
LIFO Method
Account Titles and Explanation
Debit
Credit
Net Income
Account Titles and Explanation
Debit
Credit
Exercise 22-2
Oriole 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 $16,080 $18,980 $11,940 2016 17,980 20,800 14,020 2017 19,920 24,890 17,050(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 $ 2016 $ 2017 $(c) Assume Oriole Company used the LIFO method instead of the average cost method during the years 2015–2017. In 2018, Oriole changed to the FIFO method. Prepare the journal entry necessary to record the change in principle. (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
Explanation / Answer
Average FIFO LIFO cost method method method 2015 16,080 18,980 11,940 2016 17,980 20,800 14,020 2017 19,920 24,890 17,050 total 53,980 64,670 43,010 a) Account titles and explanations Debit Credit Inventory 10,690 retained earnings 10,690 (64,670-53,980) b) Net income 2015 18,980 2016 20,800 2017 24,890 c) Account titles and explanations Debit Credit inventory 21,660 Retained earnings 21,660 (64,670-43,010)
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