X industries has used the LIFO inventory since it started business 10 years ago.

It has decided that it would comply with the IFRS standard and would switch to the FIFO method effective January 1, 2014 for the 2014 financial year.

International uses a periodic inventory system.

Records are not available such that years prior to 2013 can be restated. That means that the difference in the January 1, 2013 inventory is an adjustment to January 1, 2013 retained earnings (net of tax)

The tax rate for all periods is 40%

X uses a periodic inventory method

Here are the end products needed;

Restated income statement and retained earnings statement for 2013 Income and retained earnings earning statement for 2014, using FIFO ( the RE for 2013 will include inventory adjustment as of 1/1/13, the RE for 1/1/14 will include the inventory adjustment as of 1/1/14Entries to adjust inventory, retained earnings and taxes as of January 1, 2014Journal entries to close purchases and adjust inventories and to create a cost of goods sold for 2014

If it?s suggested you create cost of goods T-accounts for 2013 under both LIFO and FIFO to calculate the number for 2013

For 2014 you really only need a cost of goods sold using the FIFO method since the change will be effective for 2014

These are the inventory values on January 1, 2013

LIFO FIFO

300 @ 20 6,000 500 @ 28 14,000

200 @ 23 4,600

Transaction for 2013;

Purchases

800 @ 32 25,600

700 @ 35 24,500

Sold

1200 @ 60 72,000

Transactions for 2014

Purchases

1,000 @ 38 38,000

1,200 @ 40 48,000

Sold

1,800 @ 79 142,200

Income statement (2014 has not been issued it is tentative)

2013

Sales 72,000 sales 142,200

Cost of goods sold 40,500 cost of goods sold 70,800

Gross profit 31,500 gross profit 71,400

S&A expenses 19,000 S&A expenses 45,000

Income before tax 12,500 income before tax 26,400

Tax provision -5,000 tax provision -10,560

Net income 7,500 net income 15,840

Retained earnings

Balance 1/1/13 130,000 balance 1/1/14 137,500

Net income 7,500 net income 15,840

Balance 12/31/13 137,500 balance 12/31/14 153,340

X industries has used the LIFO inventory since it started business 10 years ago. It has decided that it would comply with the IFRS standard and would switch to the FIFO method effective January 1, 2014 for the 2014 financial year. International uses a periodic inventory system. Records are not available such that years prior to 2013 can be restated. That means that the difference in the January 1, 2013 inventory is an adjustment to January 1, 2013 retained earnings (net of tax) The tax rate for all periods is 40% X uses a periodic inventory method Here are the end products needed; 1. Restated income statement and retained earnings statement for 2013 2. Income and retained earnings earning statement for 2014, using FIFO ( the RE for 2013 will include inventory adjustment as of 1/1/13, the RE for 1/1/14 will include the inventory adjustment as of 1/1/14 3. Entries to adjust inventory, retained earnings and taxes as of January 1, 2014 4. Journal entries to close purchases and adjust inventories and to create a cost of goods sold for 2014 If it's suggested you create cost of goods T-accounts for 2013 under both LIFO and FIFO to calculate the number for 2013 For 2014 you really only need a cost of goods sold using the FIFO method since the change will be effective for 2014 These are the inventory values on January 1, 2013 LIFO FIFO 300 @ 20 6,000 500 @ 28 200 @ 23 4,600 Transaction for 2013; Purchases 800 @ 32 25,600 700 @ 35 24,500 Sold 1200 @ 60 72,000 Transactions for 2014 Purchases 1,000 @ 38 38,000 14,000 1,200 @ 40 Sold 1,800 @ 79 48,000 142,200 Income statement (2014 has not been issued it is tentative) 2013 Sales Cost of goods sold Gross profit S&A expenses Income before tax Tax provision Net income 72,000 sales 40,500 cost of goods sold 31,500 gross profit 19,000 S&A expenses 12,500 income before tax -5,000 tax provision 7,500 net income 142,200 70,800 71,400 45,000 26,400 -10,560 15,840 Retained earnings Balance 1/1/13 Net income Balance 12/31/13 130,000 balance 1/1/14 7,500 net income 137,500 balance 12/31/14 137,500 15,840 153,340