Question

On January 1, 2017, Columbia Corp. changed its inventory method to FIFO from LIFO for both financial reporting purposes. The change resulted in an increase in the Inventory account. The net of tax amount of the increase was $2,320,000 on January 1, 2017 (all tax effects should be ignored).
The cumulative effect of the accounting change should be reported by Columbia in its 2017:

a) retained earnings statement as a $1,740,000 addition to the beginning balance.
b) income statement as a $2,320,000 cumulative effect of accounting change.
c) retained earnings statement as a $638,000 addition to the beginning balance.
d) income statement as a $1,740,000 cumulative effect of accounting change.

Answer 1

Answer:

b) income statement as a $2,320,000 cumulative effect of accounting change

Explanation:

Base on the scenario been described in the question, The change in inventory steps to FIFO from LIFO which made an increase in Inventory should be recorded in the retained earnings statement as a $2,320,000 addition to the beginning balance. Option b is the answer