Change from LIFO to FIFO: Income Statement Comparative Disclosure
Refer to Practice 20 5. Prepare the comparative note disclosure that would be provided in the notes to the 2008 financial statements with respect to the income statements for 2006, 2007, and 2008.
Practice 20 5
Change from LIFO to FIFO: First Year Retained Earnings
As of January 1, 2008, the company decided to change from the LIFO method of inventory valuation to the FIFO method. The change is being made for both book and tax purposes. Data for the past four years (including 2008) are as follows:
|
|
2008 |
2007 |
2006 |
2005 |
|
Sales |
$2,000 |
$1,500 |
$1,200 |
$1,000 |
|
Cost of goods sold—LIFO |
1,200 |
900 |
720 |
600 |
|
Ending inventory—LIFO |
200 |
150 |
120 |
100 |
|
Ending income taxes payable—LIFO |
n/a |
240 |
192 |
160 |
|
Ending retained earnings—LIFO |
1,668 |
1,188 |
828 |
540 |
|
Cost of goods sold—FIFO |
1,170 |
880 |
710 |
595 |
|
Ending inventory—FIFO |
300 |
220 |
170 |
140 |
The ending income taxes payable—LIFO amount is not given because, in 2008, income taxes payable will be computed using the newly adopted FIFO numbers. As you can see from the prior years, it is the practice of the company to pay all income taxes in the subsequent year. The company’s income tax rate is 40%, and the company has no expenses except for cost of goods sold and income tax expense.