During the fourth quarter of 2017, ABBA Fabrics, Inc., elected to change its method of valuing inventory to the weighted average cost ("WAC") method, whereas in all prior years inventory was valued using the last-in, first-out (LIFO) method. The company determined that the WAC method of accounting for inventory is preferable as the method better reflects ABBA's inventory at current costs and enhances the comparability of its financial statements by changing to the predominant method utilized in its industry.
Condensed financial statements for 2017 (using WAC) and 2016 (as originally reported) appear below. Inventory as originally reported at December 31, 2016 ($77,907), and December 31, 2015 ($127,574), increases by $36,382 and $37,432, respectively under WAC. Ignore income taxes.

Required:
1. Restate the 2016 financial statements as they should appear for comparative purposes in the 2017 annual report.
2. Draft the disclosures required by current GAAP related to the accounting change.

Transcribed Image Text:

2017 (Under WAC) 2016 (Under LIFO) Current assets Cash and cash equivalents Receivables, less allowance for doubtful accounts Inventories, net Other current assets Total current assets Long-term assets $ 2,338 3.380 104,156 1,735 1,609 53,065 164,674 117,325 88,348 24,907 (153,684) 12,222) $ 164,674 $ 2,280 4,453 77,907 9,866 94,506 56,438 150,944 123,888 75,650 100,953 (153,622) 4,075 150,944 Total assets Total liabilities Common stock Retained earnings Treasury stock Accumulated other comprehensive income Total liabilities and shareholders' equity ABBA Fabrics, Inc., Statements of Operations Years Ended December 31, (In thousands) 2017 (Under WAC) $ 276,381 (156,802) 119,579 (112,106) 2016 (Under LIFO) 276,247 (157,617) 118,630 (117,815) Sales Cost of goods sold Gross profit Selling, general, and administrative expenses Depreciation and amortization (4,409) (3,815) Operating income (loss) $ 3,064 $ (3,000)