Pronghorn Co. decides at the beginning of 2017 to adopt the FIFO method of inven
ID: 2556017 • Letter: P
Question
Pronghorn Co. decides at the beginning of 2017 to adopt the FIFO method of inventory valuation. Pronghorn had used the LIFO method for financial reporting since its inception on January 1, 2015, and had maintained records adequate to apply the FIFO method retrospectively. Pronghorn concluded that FIFO is the preferable inventory method because it reflects the current cost of inventory on the balance sheet. The following table presents the effects of the change in accounting principles on inventory and cost of goods sold. Cost of Goods Sold Determined by Inventory Determined by LIFO FIFO Method Method Date FIFO Method $ 0 $ 0 100 $ 0 LIFO Method $ 0 780 1,100 8 January 1, 2015 December 31, 2015 December 31, 2016 December 31, 2017 872 210 320 260 390 958 1,230 1,250 Retained earnings reported under LIFO are as follows. Retained Earnings Balance December 31, 2015 December 31, 2016 December 31, 2017 $1,420 2,520 3,470 Other information: 1. 2. For each year presented, sales are $3,230 and operating expenses are $1,030. Pronghorn provides two years of financial statements. Earnings per share information is not required.Explanation / Answer
PRONGHORN & Co. Income Statement For the Year Ended December 31 LIFO Year 2015 2016 2017 Sales $3,230 $3,230 $3,230 Less: Cost of Goods Sold $780 $1,100 $1,250 Less: Operating Expense $1,030 $1,030 $1,030 Net Income $1,420 $1,100 $950 PRONGHORN & Co. Income Statement For the Year Ended December 31 FIFO Year 2015 2016 2017 Sales $3,230 $3,230 $3,230 Less: Cost of Goods Sold $872 $958 $1,230 Less: Operating Expense $1,030 $1,030 $1,030 Net Income $1,328 $1,242 $970
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