Question

In 2020, Frost Company, which began operations in 2018, decided to change from LIFO to FIFO because management believed that FIFO better represented the flow of their inventory. Management prepared the following analysis showing the effect of this change: CHART OF ACCOUNTS Frost Company Ending Inventory LIFO FIFO Cumulative Difference General Ledger 12/31/2018 $239,600 $271,600 $32,000 12/31/2019 246,400 301,800 55,400 ASSETS REVENUE 12/31/2020 255,000 328,700 73.700 111 Cash 411 Sales Revenue 121 Accounts Receivable Frost reported net income of $2,487,000, $2,332,000, and $2,057,000 in 2018, 2019, and 2020, respectively. The tax rate is 40%. 141 Inventory EXPENSES 500 Cost of Goods Sold Required: 1. Prepare the journal entry necessary to record the change. 2. What amount of net income would Frost report in 2018, 2019, and 2020? 152 Prepaid Insurance 154 Deferred Tax Asset 511 Insurance Expense 512 Utilities Expense 181 Equipment 189 Accumulated Depreciation 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense LIABILITIES 541 Depreciation 211 Accounts Payable Expense 231 Salaries Payable 559 Miscellaneous 250 Unearned Revenue Expenses 260 Deferred Tax Liability 910 Income Tax Expense EQUITY 311 Common Stock 331 Retained Earnings

Answer 1

GENERAL JOURNAL DATE ACCOUNT TITLE DEBIT CREDIT Jan 12020 Inventory Account 55400 Jan 12020 Deffered tax liability 22160 (55400 840-27 Jan/2020 Retained Earnings 33240 2 2 2018 2019 2020 Net Income under FIFO $ 9519000 $ 2355400 $2075300 Net Incomec) (2487000 +3200012332000 6) 32000 + 55400 2057000(-)55400 (+) 73700 op stock (encrease) (+) Increase in els. stock