Question

Sweet Company began operations in 2015 and for simplicity reasons, adopted weighted-average pricing for inventory. In 2017, in accordance with other companies in its industry, Sweet changed its inventory pricing to FIFO. The pretax income data is reported below.

Year		Weighted-Average			FIFO
2015		$379,700			$401,700
2016		407,400			427,900
2017		413,500			469,200

What is Sweet’s net income in 2017? Assume a 35% tax rate in all years.

Net Income

Compute the cumulative effect of the change in accounting principle from weighted-average to FIFO inventory pricing.

Net effect

Show comparative income statements for Sweet Company, beginning with income before income tax, as presented on the 2017 income statement.

		2017		2016		2015
Income before income tax		$		$		$
Income tax
Net income

Answer 1

u Change in Inventory Valuation :- If any entity change its inventory Valuation method je in present core from weighted average price to FIFO', then it is basically change in accounting policy. The change in inventory Valuation method impacte the company's income, cost of goods sold and the taxer owed by the company. IF o company changes its accounting policy, the change must be justifiable and applied retrospectively to the financial statements. CA) (8) i) Calculation of change in Income :- (B-A) Yeauty Weighted Average FIFO Increare (decrease) 2015 $319, foo $ 401, 700 $22,000 2016 $ 407,400 $427.900 $20,500 2017 $ 418,500 $4,69,200 $55,00 → Hence, it is clear from the above calculation that the change in inventory Valuah'on from weighted- average to FIFO method results in in care of the income before taxes and it will also cause an increase in the tax duer. CS Scanned with CamScanner

Statement of Net effect :- 2017 2016 2015 $ 22,000 $55, 100 $20,500 Increase in Income before tax les: - Additional Income tax @ 35-7 $ , too $19,495 $ 7,175 Increase in Net 36,205 $13,325 $14,300 Income / Net effect → The above clatement shows the increase in het income of year 2017, 2016, and 2015 by $36,205, $13,325 and $14.300 repectively m) statement of the best Net Income :- 2017 2016 2015 Income before tax $469,200 $427,900 $401, Foo (under FIFO' method) $ 140,595 $164,220 @ 35-4 Net Income 304,980 $ 278,135 $ 261,105 → Hence Net Income Under FIFO method for year 2017, 2016, and 2015 will be $304.980, $278,135 and $261, los. $149,765 les :- Income tax 7 CS Scanned with CamScanner