In 20X2, 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, firstout
(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 20X2 (using WAC) and 20X1 (as originally reported)
appear below. Inventory as originally reported at December 31, 20X1 ($77,907), and December
31, 20X0 ($127,574), increases by $36,382 and $37,432, respectively under WAC.
Ignore income taxes.

Required:

1. Restate the 20X1 financial statements as they should appear for comparative purposes in the 20X2 annual report.

2. Draft the disclosures required by current GAAP related to the accounting change.

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ABBA Fabrics, Inc., Balance Sheets December 31, (in thousands) 20X2 (Under WAC) 20X1 (Under LIFO) Current assets: $ 2,280 Cash and cash equivalents Receivables, less allowance for doubtful accounts Inventories, net 2,338 3,380 104, 156 1,735 4,453 77,907 9,866 Other current assets Total current assets 111,609 53,065 94,506 Long-term assets 56,438 $ 164,674 $ 150,944 $ 123,888 75,650 100,953 Total assets $ 117,325 88,348 Total liabilities Common stock Retained earnings Treasury stock Accumulated other comprehensive income 124,907 (153,684) (12,222) (153,622) 4,075 Total liabilities and shareholders' equity $ 164,674 $ 150,944