Business, 23.05.2020 00:06 rwlockwood1
Most voluntary changes in accounting principles are reported retrospectively. This means for each year reported in the comparative statements, we make those statements appear as if the newly adopted accounting method had been applied all along. A journal entry is created to adjust all account balances affected as of the date of the change. In the first set of financial statements after the change, a disclosure note describes the change and justifies the new method as preferable. It also describes the effects of the change on all items affected, including the fact that the retained earnings balance was revised in the statement of shareholders’ equity.
Melas Company changed from the LIFO to the FIFO inventory costing method on January 1, Year 3. Inventory values at the end of each year since the inception of the company are as follows:
FIFO LIFO
Year 1 $195,000 $177,500
Year 2 $390,000 $355,000
Ignoring income tax considerations, prepare the appropriate journal entry, dated January 1, Year 3, to report this accounting change. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
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Most voluntary changes in accounting principles are reported retrospectively. This means for each ye...
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