Millington Materials is a leading supplier of building equipment, building produ
ID: 2422823 • Letter: M
Question
Millington Materials is a leading supplier of building equipment, building products,materials & timber for sale, with over 200 branches across the Mid-South. On January 1, 2016, management decided to change from the LIFO inventory costing method to the FIFO inventory costing method at each of its outlets. The following table presents information concerning the change. The income tax rate for all years is 40%.
Prepare the journal entry to record the change in accounting principle. (All tax effects should be reflected in the deferred tax liability account.) (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)
Determine the net income to be reported in the 2016–2015 comparative income statements. (Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)
Which other 2015 amounts would be reported differently in the 2016–2015 comparative income statements and 2016–2015 comparative balance sheets than they were reported the previous year? (Select all that apply.)
Compute the balance of retained earnings on Jan. 1, 2015, Dec. 31, 2015 and Dec. 31, 2016. Cash dividends were $3.0 million each year. (Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)
Millington Materials is a leading supplier of building equipment, building products,materials & timber for sale, with over 200 branches across the Mid-South. On January 1, 2016, management decided to change from the LIFO inventory costing method to the FIFO inventory costing method at each of its outlets. The following table presents information concerning the change. The income tax rate for all years is 40%.
Explanation / Answer
1) ASC 250 requires change in accounting principle to be applied retrospectively to all prior periods.
a. The cumulative effect of the change to the new accounting principle on periods prior to those presented is reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented.
b. An offsetting adjustment, if any, is made to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) for that period.
c. Financial statements for each individual prior period presented are adjusted to reflect the periodspecific effects of applying the new accounting principle.
In the given scenario, retained earning will be debited and COGS will be credited with the following amounts:-
Year 2015 : 23*0.60=13.8 million impact
Year 2016 : 1*060=0.6 million impact
2) In 2016, net income to be reported is 30 million (Before tax)
In 2015 comparative, net income to be reported is 48 million (Before tax)
3) COGS and INventory amounts will be reported differently
4) Retained earning on 1 Jan 2015 (before inventory change impact) is 28 million*0.60=16.8 million.