Question
Change in Inventory Method In 2017, Frost company, which began operations in 2015, decided to change from LIFO to FIFO because management believed that FIFO
Change in Inventory Method In 2017, Frost company, which began operations in 2015, decided to change from LIFO to FIFO because management believed that FIFO better represented the flow of their inventory, management prepared the following analysis showing the effect of his change:
Ending inventory | LIFO | FIFO | Cumulative Differences |
12/31/2015 | 240000 | 273,000 | 33,000 |
12/31/2016 | 245000 | 301,000 | 56,000 |
12/31/2017 | 256000 | 328,000 | 72,000 |
Frost reported net income of $2,500,000, $2,400,000, and $2,100,000 in 2015, 2016 and 2017, respecrively. The tax rate is 30%.
1. Prepare the journal entry necessary to record the change.
2. What amount of net income would frost report in 2015, 2016 and 2017?
3. If Frosts employees received a bonus of 10% of income before deducting the bonus and income taxes in 2015 and 2016, what would be the effect on net income for 2015, 2016 and 2017?
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