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Holder-Webb

E22-2 (Change in Principle?Inventory Methods) Holder-Webb Company began operations on
January 1, 2005, and uses the average cost method of pricing inventory. Management is contemplating a
change in inventory methods for 2008. The following information is available for the years 2005-2007.
Net Income Computed Using
Average Cost Method FIFO Method LIFO Method
2005 $15,000 $19,000 $12,000
2006 18,000 23,000 14,000
2007 20,000 25,000 17,000
Instructions
(Ignore all tax effects.)
(a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO
method in 2008.
(b) Determine net income to be reported for 2005, 2006, and 2007, after giving effect to the change in
accounting principle.
(c) Assume Holder-Webb Company used the LIFO method instead of the average cost method during
the years 2005-2007. In 2008, Holder-Webb changed to the FIFO method. Prepare the journal
entry necessary to record the change in principle.

Solution Preview

E22-2 (Change in Principle?Inventory Methods)
E22-2 (Change in Principle?Inventory Methods) Holder-Webb Company began operations on
January 1, 2005, and uses the average cost method of pricing inventory. Management is contemplating a change in inventory methods for 2008. The following information is available for the years 2005-2007.

Net Income Computed Using

Average Cost Method FIFO Method LIFO Method

2005 $15,000 ...

Solution Summary

This solution is comprised of a detailed explanation to prepare the journal entry necessary to record the change in principle.

$2.19