Millington Materials is a leading supplier of building equipment, building produ
ID: 2479720 • 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 (i.e., 10,000,000 should be entered as 10).)
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 $1 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) Journal Entries:
2. the net income to be reported in the 2016–2015 comparative income statements :
3. The 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:
Inventory (under the current assets in Balance Sheet)
4. the balance of retained earnings on Jan. 1, 2015, Dec. 31, 2015 and Dec. 31, 2016. Cash dividends were $1 million each year :
= (15 - 7) / 40% = $20 m - 1m (dividend) = $19 m
Date Accounts Titles and explanation Debit $ Credit $ Jan1 2015 Inventory (Balance Sheet) 17.50 m Closing Inventory (Income Statement) 17.50 m (7 / 40%) Income Tax Payable 7 m Deferred Tax Liability 7 m