Rockwell Corporation uses a periodic inventory system and has used the FIFO cost
ID: 2724808 • Letter: R
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?
Explanation / Answer
Solution:
Opening inventory + purchase - closing = cost of goods sold
156000 + 408000 - closing =564000
Closing stock = 0
Journal entries :
To effect the average cost method :
FIFO impact opening and closing = 156000- 0 = 156000
Average would be = 114000 - closing
net opening effect = 114000- 156000= -42000
Wee nned to find the closing value
= (114000+408000)/18000 = per unit value = 29
closing value = 11000*29 = 319000
Journal entries net effect = 319000 - 42000
= 277000
Dr Cr
Inventory account A/c 277000
Income tax payable A/c 110800
Retained earnings A/c 166200
Being closing stock more than the FIFO method hence revenue needs to be value because it was under valued. TH?e effect of change had increases the revenue in the year 2013
Thank you.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.