lc) 1 (of 3) 1 value: 0.50 points During 2014 (its first year of operations) and
ID: 2512073 • Letter: L
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lc) 1 (of 3) 1 value: 0.50 points During 2014 (its first year of operations) and 2015, Batali Foods used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2016, Batali decided to change to the average g and tax purposes Income components before income tax for 2016, 2015, and 2014 were as follows ($ in millions): 16 20152014 $ 440 $ 410$ 400 (48) (42) (40) Revenues Cost of goods sold (FIFO) Cost of goods sold (average)(66)(60)(56) Operating expenses (262) (258) (250) Dividends of $21 million were paid each year. Batali's fiscal year ends December 31 Required: 1. Prepare the journal entry at the beginning of 2016 to record the change in accounting principle. (Ignore income taxes.) (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).) View n list Journal entry worksheetExplanation / Answer
1 Date General Journal Debit Credit 2016 (In million $) Jan 1. Retained earnings 34 Inventory 34 Explanation: 2014 2015 (In million $) Cost of goods sold (FIFO) 40 42 Cost of goods sold (Average) 56 60 Diff. 16 18 34 Decrease in net income y $34 million 2 2016 2015 (In million $) Revenues 440 410 Less: Cost of goods sold 66 60 Gross profit 374 350 Less: Operating expenses 262 258 Net income 112 92 3 ( in Million $) Retained earnings balance previously reported using FIFO, Jan 1,2015 89 (Note:1) Adjustment to balance for change in inventory methods (Refer part 1) -16 Retained earnings balance usingaverage method, Jan 1,2015 73 Notes: 1 2014 (in million $) Revenues 400 Less: Cost of goods sold 40 Gross profit 360 Less: Operating expenses 250 Net income 110 Less: Dividend paid 21 Retained earnings 89
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