Question

Cullumber Company began operations in 2015 and for simplicity reasons, adopted weighted-average pricing for inventory. In 2017, in accordance with other companies in its industry, Cullumber changed its inventory pricing to FIFO. The pretax income data is reported below.
Year Weighted-Average FIFO

2015 $379,700 $401,700

2016 407,400 427,900

2017 413,500 469,200

A) What is Cullumber’s net income in 2017? Assume a 35% tax rate in all years.

B) Compute the cumulative effect of the change in accounting principle from weighted-average to FIFO inventory pricing.

C) Show comparative income statements for Cullumber Company, beginning with income before income tax, as presented on the 2017 income statement.

2017 2016 2015

Income before income tax

Income tax

Net income

Answer 1

Answer:

Explanation:

A)

Income before Income Tax    469,200.00

Income Tax ($469200 X 35%)    164,220.00

Net Income     304,980.00

B)

2015 Weighted Average = 379,700.00        

2016 Weighted Average = 407,400.00        

2015 FIFO =  401,700.00

2016 FIFO = 427,900.00

2015 Difference between weighted average and FIFO 22,000.00

2016 Difference between weighted average and FIFO 20,500.00

Total difference = 42,500

Tax = 42,500*0.35 = 14,875

Net effect = 42,500 - 14,875 = 27,625.00

C)

                                                     2017             2016             2015

Income before Income Tax    469,200.00    427,900.00    401,700.00

Income tax (35%)                     164,220.00    149,765.00    140,595.00

Net Income                             304,980.00  278,135.00    261,105.00