Change from FIFO to LIFO Inventory
The Greenriver Manufacturing Company manufactures two products: Raft and Float. At December 31, 2007, Greenriver used the FIFO inventory method. Effective January 1, 2008, Greenriver changed to the LIFO inventory method. The retroactive effect of this change is not determinable, and as a result, the ending inventory for 2007 for which the FIFO method was used is also the beginning inventory for 2008 for the LIFO method. Any layers added during 2008 should be costed by reference to the first acquisitions of 2008. The information below was available from Greenriver inventory records for the two most recent years:
|
|
Units |
Raft |
|
Float |
|
|
|
Unit Cost |
Units |
Unit Cost |
|
2007 purchases: |
|
|
|
|
|
January 7 |
5,000 |
$4.00 |
22,000 |
$2.00 |
|
April 16 |
12,000 |
4.50 |
|
|
|
November 8 |
17,000 |
5.00 |
18,500 |
2.50 |
|
December 13 |
10,000 |
6.00 |
|
|
|
2008 purchases: |
|
|
|
|
|
February 11 |
3,000 |
7.00 |
23,000 |
3.00 |
|
May 20 |
8,000 |
7.50 |
|
|
|
October 15 |
20,000 |
8.00 |
|
|
|
December 23 |
|
|
15,500 |
3.50 |
|
Units on hand: |
|
|
|
|
|
December 31, 2007 |
15,000 |
|
14,500 |
|
|
December 31, 2008 |
16,000 |
|
13,000 |
|
Instructions: Compute the effect on net income for the year ended December 31, 2008, resulting from the change from the FIFO to the LIFO inventory method. Ignore income taxes.