Change from FIFO to Average Cost

koopmancompany began operations on January 1,2012, and uses the FIFIO inventory method for financial and the average cost inventory method for income taxes. At the beginning of 2014, Koopman decided to switch to the average cost inventory method for financial reporting. It had previously reportedthe following financial statement information for 2013:

Income Statement 2013 Retained Earnings Statement 2013

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

Cost of goods sold(60,000) Add: Net income10,500

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

Income before income taxes15,000Ending 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 Account payable $ 3,000

Inventory 38,000 Income tax payable 1,800

OtherAssets 64,100 Deferred tax liability4,800

Common stock, no par 82,000

Retained earnings19,500

$111,100

$111,100

An analysis of the accounting records discloses the following cost of good sold under the FIFO and average cost inventory methods:

FIFO Cost of Good sold Average Cost of Goods sold

2012$50,000 $57,000

201360,000 69,000

2014 70,000 80,000

thereare 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% income tax rate in all years; it 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 during all years; it paid dividends of $1 per share in 2014. At the rend 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 desires to show financial statements for the current year and the previous year in its 2014 annual report.

1. Prepare the journal entry to reflect the change in methods 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

2. Prepare the comparative income statements

Round EPS to the nearest cent

Koopman Company

Comparative Income statements

ForYears Ended December 31

2014 2013

As Adjusted

Revenues

Cost of good sold

Gross profit

Operating expenses

Income before income taxes

Income tax expense

Net income

Earnings per share

Prepare the comparative retained earnings statements

Koopman Company

Comparative Retained Earnings Statements

For Years Ended December 31

2014 2013

Beginning Unadjusted retained earnings

Less: Adjusted beginning retained earnings

Add: Net income

Less: Dividends

Ending retained earning

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 Stockholder's Equity

Account payable

Income taxes payable

Common stock, no par

Retained earnings

Total liabilities and stockholder's equity