Question

On January 1, 2018, Crane Corp. changed its inventory method to FIFO from LIFO for both financial and income tax reporting purposes. The change resulted in a $1030000 increase in the January 1, 2018 inventory. Assume that the income tax rate for all years is 35%. The cumulative effect of the accounting change should be reported by Crane in its 2018.________________.

Answer 1

Explanation:

Data provided in the question

Change in the inventory = $1,030,000

i.e Opening inventory = $1,030,000

Income tax rate = 35%

So, the cumulative effect in the year 2018 is

Opening inventory   $1,030,000

Less: income tax rate i.e 35% -$360,500

Balance                         $699,500

This balance would be addition to the beginning balance of the retained earning statement