Business, 17.06.2020 04:57 glogaming16

Jones Corporation switched from the LIFO method of costing inventories to the FIFO method at the beginning of 2017. The LIFO inventory at the end of 20X0 would have been $80,000 higher using FIFO. Reported retained earnings at the end of 2016 were $1,750,000. Jones’s tax rate is 21%. Tax law requires a company using LIFO for tax purposes to use it for financial reporting as well. So, when Jones changes from LIFO to FIFO, it will have to do the same for tax purposes. Further, Jones must recognize taxable income equal to the amount by which it increases the inventory valuation when it makes the change. As a result, Jones will pay tax on an additional $80,000 of taxable income in 2017. Required:
a. Calculate the balance in retained earnings at the time of the change (beginning of 2017) as it would have been reported had FIFO been previously used.
b. Prepare the journal entry to record the change in accounting principle at the beginning of 2017.

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a. Calculate the balance in retained earnings at the time of the change (beginning of 2017) as it would have been reported had FIFO been previously used.

$1,813,200

b. Prepare the journal entry to record the change in accounting principle at the beginning of 2017.

Dr Inventory 80,000 Cr Income taxes payable 16,800 Cr Retained earnings63,200

Explanation:

inventory under FIFO would have been $80,000 higher, that means that COGS were overstated by $80,000 and net earnings were understated by $80,000.

retained earnings 2016 = $1,750,000

tax rate 21%

Dr Inventory 80,000

Income taxes payable 16,800

Retained earnings63,200

Retained earnings = $1,750,000 + $63,200 = $1,813,200

When companies change from LIFO to FIFO, they must adjust their income statement and balance sheet in a prospective way because it will affect the future value of their accounts. But when a company changes from FIFO to LIFO, no adjustment is required.

Answer from: Quest

the answer to this question would be shared investment

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The business cycle is the periodic but irregular up-and-down movement in economic activity, measured by fluctuations in real gross domestic product (gdp) and other macroeconomic variables. a business cycle is typically characterized by four phases—recession, recovery, growth, and decline—that repeat themselves over time. economists note, however, that complete business cycles vary in length. the duration of business cycles can be anywhere from about two to twelve years, with most cycles averaging six years in length. some business analysts use the business cycle model and terminology to study and explain fluctuations in business inventory and other individual elements of corporate operations. but the term "business cycle" is still primarily associated with larger (industry-wide, regional, national, or even international) business trends.

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Jones Corporation switched from the LIFO method of costing inventories to the FIFO method at the beg...

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