Reference no: EM131219962
Solaris Company currently uses the average cost method to price its inventory. Management contemplates changing its inventory method starting in 2017. Solaris has provided the following information for years 2014 to 2016.
Year Net Income if using
FIFO Method LIFO Method Average Cost Method
2014 $20,000 $12,000 $15,000
2015 24,000 14,000 18,000
2016 27,000 17,000 20,000
In addition, on January 1, 2016, Solaris issued a 10-year, $200,000 face value 6% bonds at par. Each $1,000 bond is convertible into 30 shares of Solaris common stock. Common stock outstanding is always 10,000. As of 2017, none of the bonds have been exercised.
Required
1. Use the journal entries spreadsheet supplied to record the journal entries necessary to record a change from the average cost method to the FIFO method in 2017. Be sure to show how you calculate the amount used for the journal entries. Ignore income tax effect.
2. Use the journal entries spreadsheet supplied to record the journal entries necessary to record assuming Solaris changes from the LIFO method to the FIFO method in 2017. Be sure to show how you calculate the amount used for the journal entries. Ignore income tax effect.
3. Assume Solaris had the accounting change for the convertible bonds as described above and that Solaris’s income in 2017 was $30,000. Compute basic and diluted earnings per share for Solaris Company for 2017. Show how income, basic EPS, and diluted EPS will be reported for 2017 and 2016 respectively. Be sure to show calculations.
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