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Goddard has used the FIFO method of inventory valuation since it began operations in 1987. Goddard decided to change to the weighted-average method for determining inventory costs at the beginning of 1990. The following schedule shows year-end inventory balances under the FIFO and weighted-average methods:
What amount, before income taxes, should be reported in the 1990 retained earnings statement as the cumulative effect of the change in accounting principle?
Suggested Answer: B
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Choice 'B' is correct. If comparative FS are issued, restate prior year's FS. If comparative FS are not issued, restate prior year-end's retained earnings account by 'adjusting' (net of tax) the opening balance of the current retained earnings statement.
34 comments · newest first
AN
Antonio
10 months ago
I agree, $3,000 makes the most sense here!
TA
Tamar
11 months ago
Definitely not $0, that seems off.
DE
Deandrea
11 months ago
Wait, how does changing methods affect retained earnings?
JO
Jovita
11 months ago
I think the decrease should be $3,000.
MI
Micaela
11 months ago
FIFO was used for 3 years before the switch.
LA
Lacey
12 months ago
I think I might have seen a similar question where the cumulative effect was zero, but I can't remember the specifics. It’s tricky!
XU
Xuan
12 months ago
I feel like the cumulative effect should reflect the difference in inventory values, but I can't recall if it should be an increase or decrease.
NO
Nohemi
12 months ago
This question reminds me of a practice problem where we had to determine the impact of switching from FIFO to weighted-average. I think it was about understanding the differences in inventory valuation.
SY
Sylvie
1 year ago
I remember we discussed how changes in accounting principles affect retained earnings, but I'm not sure how to calculate the cumulative effect here.
DO
Doug
1 year ago
I've got this! The key is to focus on the difference between the FIFO and weighted-average methods. The question is asking for the amount to report in the 1990 retained earnings statement, so I just need to find that difference.
MA
Maryann
1 year ago
I'm a bit confused about how to determine the cumulative effect. Should I just look at the difference in the year-end balances, or is there more to it?
LI
Ling
1 year ago
Okay, let me think this through step-by-step. I need to calculate the difference between the FIFO and weighted-average inventory values and report that as the cumulative effect.
LU
Lucia
1 year ago
This question seems straightforward, but I want to make sure I understand the FIFO and weighted-average methods before answering.
RE
Ressie
1 year ago
Wait, is this a trick question? What if the answer is actually D) $0, and the whole thing is just a ploy to see if we're paying attention?
JU
Julene
1 year ago
User 3: I'm not sure, but I think it might be D) $0.
DI
Dierdre
1 year ago
User 2: No, I believe it's A) $5,000 decrease.
TE
Tenesha
1 year ago
User 1: I think the answer is C) $2,000 increase.
TI
Tiera
1 year ago
Let's see, if Goddard changed from FIFO to weighted-average, that means their inventory value went down. So it's gotta be a decrease in retained earnings. I'll go with B.
AN
An
1 year ago
Jeffrey: I'm leaning towards option B, a $3,000 decrease.
HO
Honey
1 year ago
User 3: So, which option do you think is the correct amount for the cumulative effect of the change?
JE
Jeffrey
1 year ago
User 2: Yeah, I agree. The inventory value went down, so it makes sense that retained earnings would decrease.
MI
Miss
1 year ago
User 1: I think the change in accounting principle will result in a decrease in retained earnings.
TO
Tomas
1 year ago
Oh man, I hate these accounting questions. Why can't they just ask something simple, like 'What's the meaning of life?' That I could answer easily.
SH
Shaniqua
1 year ago
User 2: I agree, I wish they were more straightforward like that.
TH
Thurman
1 year ago
User 1: I know right, accounting questions can be so confusing.
NI
Nina
1 year ago
Hmm, I'm pretty sure the answer is B) $3,000 decrease. The change in method would result in a lower inventory value, so it has to be a decrease in retained earnings.
ZO
Zoila
2 years ago
But changing to weighted-average method should result in a decrease in retained earnings, so A) makes more sense.
DE
Deane
2 years ago
This is a tricky one. I'm going to have to really think through the FIFO and weighted-average methods to figure out the correct answer.
CH
Charlena
1 year ago
I agree with the first response, C) $2,000 increase seems correct.
LA
Lauryn
1 year ago
I believe it's B) $3,000 decrease.
TE
Temeka
1 year ago
I'm not sure, I think it might be A) $5,000 decrease.
SU
Sue
1 year ago
I think the answer is C) $2,000 increase.
JO
Josefa
2 years ago
I disagree, I believe the answer is B) $3,000 decrease.
ZO
Zoila
2 years ago
I think the answer is A) $5,000 decrease.