Accounting changes and error corrections:
a. Macintosh Inc. changed from LIFO to the FIFO inventory costing method on January 1, 2006. Inventory values at the end of each year since the inception of the company are as follows:
2004 $200,000 $180,000
2005 400,000 360,000
Required: Ignoring income tax considerations, prepare the entry, if any, to report this accounting change.
b. Colorado Consulting Company has been using the sum-of-the-years'-digits depreciation method to depreciate some office equipment that was acquired at the beginning of 2004. At the beginning of 2006, Colorado Consulting decided to change to the straight-line method. The equipment cost $120,000 and is expected to have no salvage value. The estimated useful life of the equipment is 5 years. The tax rate is 30%.
Required: Prepare the journal entry, if any, to record the cumulative effect of the
(a) We have the following table:
Year FIFO LIFO Diff.
2004 $200,000 $180,000 $20,000
2005 $400,000 $360,000 $40,000
Total $600,000 $540,000 $60,000
Hence, the journal entry would look like:
Inventory difference $60,000
It's worth mentioning ...
A table is provided and then the entry is made from the table of amounts.