Winthur Stores began operations on January 1, 2018, and adopted the FIFO method of accounting for its inventory for book and tax purposes. In 2021, it is considering a change to the average-cost method basis for book purposes only. Winthur provided the following information to assist in deciding whether to change inventory valuation techniques.

Required

a. Prepare the income statements under both methods for the years ended December 31, 2018, through December 31, 2020.

b. Assume that Winthur Stores changes to the average-cost method effective January 1, 2021. Prepare the comparative income statements for the 3 years ended December 31, 2021.

c. Prepare the retained earnings column of the statement of stockholders’ equity for the year ended December 31, 2021, assuming that Winthur does not present comparative statements. Winthur does not declare dividends in 2018–2021.

Transcribed Image Text:

Ending Inventory Year Ended FIFO 12/31/2018 $12,000 12/31/2019 12/31/2020 12/31/2021 19,500 28,000 35,600 Average Cost FIFO $74,000 78,500 91,000 90,000 Winthur Stores reported the following income statement information: Account Sales revenue Selling, general, and administrative expenses Income tax rate $10,000 16,000 24,000 32,000 Cost of Sales 2021 $200,000 $54,000 $40,000 40% Average Cost 2020 2019 $175,000 $160,000 $36,500 40% $ 76,000 82,000 95,000 108,000 40% Retained Earnings FIFO $ 24,600 51,600 78,000 111,600 2018 $145,000 $30,000 40% Average Cost $23,400 48,300 72,300 95,100