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Armstrong Ltd. has used the average cost (AC) method to determine inventory values since the company was first formed in 20x3.In 20X7, the company decided
Armstrong Ltd. has used the average cost (AC) method to determine inventory values since the company was first formed in 20x3.In 20X7, the company decided to switch to the FIFO method, to conform to industry practice. Armstrong will still use average cost for tax purposes. The tax rate is 20%. The following data have been assembled: Net income, as reported, after tax Closing inventory, AC Closing inventory, FIFO Dividends 20x3 $69,000* 43,300 50,600 6,300 20X4 $81,989 56,700 71,800 8,800 20x5 $271,800 70,400 65,100 8,888 20x6 $320, 300 114,400 105,680 12,300 20x7 $153,900** 142,600 159,900 17,300 *Using the old policy, average cost **Using the new policy, FIFO. Required: Prepare the comparative retained earnings section of the statement of changes in shareholders' equity for 20X7, reflecting the change in accounting policy. 20X6 ARMSTRONG LIMITED Comparative Retained Earnings Statement For the Year Ended 31 December 20X7 20x7 Opening retained earnings, 1 January Cumulative effect of a change in accounting principles Opening retained earnings restated Earnings Dividends Closing retained earnings, 31 December
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