Determine the balance in the retained earnings at January

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Problem - During 2019 (its first year of operations) and 202, Fieri Foods used the FIFO inventory costing method for both financial and tax purposes. At the beginning of 2021, Fieri decided to change to the average method for both financial reporting and tax purposes; ignore taxes for this problem.

Income components before income tax for 2019, 2020, and 2021 were as follows:

($ in millions)

2019

2020

2021

Revenues

$380

$390

$420

Cost of goods sold (FIFO)

$(38)

$(40)

$(46)

Cost of goods sold (average)

$(52)

$(56)

$(62)

Operating expenses

$(242)

$(250)

$(254)

Dividends of $20 million were paid each year. Fieri's fiscal year ends December 31.

Required -

1. Prepare the journal entries at the beginning of 2021 to record the change in accounting principle. (ignore income taxes).

2. Prepare the 2021-2020 comparative income statements.

3. Determine the balance in the retained earnings at January 1, 2020, as Fieri reported previously using the FIFO method.

Reference no: EM133032434

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