The Cecil-Booker Vending Company changed its method of valuing inventory from

QUESTION

P20-1 Change in inventory costing
methods; comparative income statements

The
Cecil-Booker Vending Company changed its method of valuing inventory from the
average cost method to the FIFO cost method at the beginning of 2011. At
December 31, 2010, inventories were $120,000 (average cost basis) and were
$124,000 a year earlier. Cecil-Booker’s accountants determined that the
inventories would have totaled $155,000 at December 31, 2010, and $160,000 at
December 31, 2009, if determined on a FIFO basis. A tax rate of 40% is in
effect for all years.

One
hundred thousand common shares were outstanding each year. Income from
continuing operations was $400,000 in 2010 and $525,000 in 2011. There were no
extraordinary items either year.

Required:
1.Prepare the journal entry to record
the change in accounting principle. (All tax effects should be reflected in the
deferred tax liability account.)

2.
Prepare the 2011–2010 comparative income statements beginning with income from
continuing operations. Include per share amounts.

ANSWER:

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