Change from FIFO to Average Cost

Koopman Company Began operations on January 1,2012, and uses the FIFO inventory method for financial reporting and the average cost inventory method for income taxes. At the beginning of 2014, koopman decided to swich to the average cost inventory method for financial reporting. It had previously reported the following financial statement information for 2013:

Income Statement 2013 Retained Earning Statement 2013

Revenues $100,000 Beginning retained earnings $ 15,000

Cost of goods sold (60,000) Add: Net income 10,500

Gross profit $40,000 25,500

Operating expenses 25,000 Less Dividends (6,000)

Income before income taxes 15,000 Ending retained earnings $ 19,500

Income tax expense (4,500)

Net income $10,500

Earning per share $ 1.05

Balance Sheet (12/31/13)

Cash $ 9,000 Accounts payable $ 3,000

Inventory 38,000 Income taxes payable 1,800

Other Assets 64,100 Deferred tax liability 4,800

Common stock, no par 82,200

Retained earning 19,500

$ 111,100

FIFO Cost of Goods Sold Average Cost of Good Sold

2012 $50,000 $57,000

2013 60,000 69,000

2014 70,000 80,000

There are no indirect effects of the change in inventory method. Revenues for 2014 total $130,000; operating expenses for 2014 total $30,000. Koopman is subject to a 30% oncome tax rate in all years; is pays the income taxes payable of the current year in the first quarter of the next year. Koopman had 10,000 shares of common stock outstanding duing all years; it paid dividends of $1 per share in 2014. At the end of 2014, Koopman had cash of $10,000, inventory of $24,000, other assets of 70,800, accounts payable of $4,500, and income taxes payable of $6,000. It desiores to show financial statements for the current year and previous yearin its 2014 annual report.

1. Prepare the journal entry to regflect the change in method at the beginning of 2014.

for compound entries, if an amount box does not require an entry, leave it blank.

Retained Earnings

Deferred Tax Liability

Inventory

Prepare the comparative retained earning statements.

Koopman Company

Comparative Retained Earnings Statements

For Years Ended December 31

2014 2013

Beginning unadjusted retained earnings

Less: Adjustment for prior yea

Adjusted beginning retained earnings

Add: Net income

Less: Dividends

Ending retained earnings

Prepare the comparative balance sheets.

Koopman Company

Comparative Balance sheets

December 31 December 31

2014 2013

Assets

Cash

Inventory

Other assets

Total assets

Liabilities and Stockholders' Equity

Accounts payable

Incometaxes payable

common stock, no par

Retained earnings

Total liabilities and staockholders' euqity