Question

Change from FIFO to Average Costkoopman company began operations on January 1,2012, and uses the FIFIO

inventory method for financial and the average cost inventory method for income taxes. At the beginning of 2014, Koopman decided to switch to the average cost inventory method for financial reporting. It had previously reported the following financial statement information for 2013: 

 Income Statement                                     2013              Retained Earnings Statement             2013

 Revenues                                                   $100,000         Beginning retained earnings           $ 15,000

 Cost of goods sold                                      (60,000)         Add: Net income                                  10,500

 Operating expenses                                   (25,000)         Less: Dividends                                  $  (6,000)

Income before income taxes                       15,000         Ending retained earnings                 $ 19,500

 Income tax expense                                     (4,500)

 Net income                                                  $ 10,500

 Earning per share                                       $     1.05

 Balance Sheet (12/31/13)

 Cash                                                $ 9,000                        Account payable                                          $ 3,000

 Inventory                                          38,000                      Income tax payable                                         1,800

 Other Assets                                     64,100                      Deferred tax liability                                       4,800

                                                                                              Common stock, no par                                  82,000

                                                                                              Retained earnings                                          19,500

                                                                                                                                                                       $111,100

                                                                 $111,100                                

 An analysis of the accounting records discloses the following cost of good sold under the FIFO and average cost inventory methods:

                                                                     FIFO Cost of Good sold                         Average Cost of Goods sold

 2012                                                               $50,000                                                               $57,000

 2013                                                                  60,000                                                                 69,000

 2014                                                                 70,000                                                                 80,000

 there are no indirect effects of the change in inventory method. Revenues for 2014 total $130,000; operating expenses for 2014 total $30,000. Koopman is subject to a 30% income tax rate in all years; it pays the income taxes payable of the current year in the first quarter of the next year. Koopman had 10,000 shares of common stock outstanding during all years; it paid dividends of $1 per share in 2014. At the rend of 2014, Koopman had cash of $10,000, inventory of $24,000, other assets of $70,800, accounts payable of $4,500, and income taxes payable of $6,000.   It desires to show financial statements for the current year and the previous year in its 2014 annual report.

 1. Prepare the journal entry to reflect the change in methods at the beginning of 2014.

 For compound entries, if an amount box does not require an entry, leave it blank.

 Retained Earnings

 Deferred Tax Liability

 Inventory

 2. Prepare the comparative income statements

 Round EPS to the nearest cent

                                        Koopman Company

                          Comparative Income statements

                           For Years Ended December 31

                                      2014                                 2013

                                                                             As Adjusted 

 Revenues

 Cost of good sold

 Gross profit

 Operating expenses

 Income before income taxes

 Income tax expense

Net income

Earnings per share

Prepare the comparative retained earnings statements

                                               Koopman Company

                                Comparative Retained Earnings Statements

                                         For Years Ended December 31

                                                            2014                                            2013

 Beginning Unadjusted retained earnings

 Less: Adjusted beginning retained earnings

 Add: Net income

 Less: Dividends

 Ending retained earning

Prepare the comparative balance sheets.

                                Koopman Company

                        Comparative Balance Sheets

                                                   December 31                                 December 31

                                                        2014                                                    2013

 Assets

 Cash

 inventory

 Other assets

 Total assets

 Liabilities and Stockholder’s Equity

 Account payable

 Income taxes payable

Common stock, no par

 Retained earnings

 Total liabilities and stockholder’s equity

 

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