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At the beginning of 2020, Brett Company decided to change from the FIFO to the average cost inventory cost flow assumption for financial reporting purposes.
At the beginning of 2020, Brett Company decided to change from the FIFO to the average cost inventory cost flow assumption for financial reporting purposes. The following data are available in regard to its pretax operating income and cost of goods sold:
Year | Reported | Excess of | Adjusted | ||||||
Income | Average Cost of Goods Sold | Income | |||||||
Before | Over | Before | |||||||
Income Taxes | FIFO Cost of Goods Sold | Income Taxes | |||||||
Prior to 2019 | $1,600,000 | $130,000 | $1,470,000 | ||||||
2019 | 600,000 | 50,000 | 550,000 | ||||||
2020 | 700,000 | ||||||||
The income tax rate is 21%, and the company received permission from the IRS to also make the change for income tax purposes. Brett has a simple capital structure, with 100,000 shares of common stock outstanding. Brett computed its reported income before income taxes in 2020 using the newly adopted inventory cost flow method. Bretts 2019 and 2020 revenues were $1,500,000 and $1,750,000, respectively. Its retained earnings balances at the beginning of 2019 and 2020 (unadjusted) were $1,264,000 and $1,738,000, respectively. Brett paid no dividends in any year. Required:
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