Question
Delta Co. began operations on January 1, 20X1. During 20X1 and 20X2, the company used the weighted-average method for its inventory costing. In 20X3, the
Delta Co. began operations on January 1, 20X1. During 20X1 and 20X2, the company used the weighted-average method for its inventory costing. In 20X3, the company changed its method of inventory costing to FIFO so that its financial statements would be more comparable to those of other firms in its industry. If the FIFO method had been used, Deltas cost of goods sold would have been $45,000 less in 20X1 and $35,000 less in 20X2. Deltas income statements, as originally presented, appear below. Deltas tax rate is 21%.
20X1 | 20X2 | 20X3 | |||||||
Sales | $ | 1,000,000 | $ | 1,100,000 | $ | 1,210,000 | |||
Cost of goods sold | 645,000 | 695,000 | 726,000 | ||||||
Gross profit | 355,000 | 405,000 | 484,000 | ||||||
Selling, general and administrative expenses | 250,000 | 255,000 | 265,000 | ||||||
Depreciation expense | 55,000 | 55,000 | 55,000 | ||||||
Income before tax | 50,000 | 95,000 | 164,000 | ||||||
Income tax expense | 10,500 | 19,950 | 34,440 | ||||||
Net income | $ | 39,500 | $ | 75,050 | $ | 129,560 | |||
Required: Assume that for comparison purposes Delta presents 20X1 and 20X2 income statements in its 20X3 annual report. Revise Deltas 20X1 and 20X2 income statements to appear as they should in the 20X3 annual report.
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