Reference no: EM132943763

ABC Company shows its income statement for 2019 and 2020

                                           2020                          2019

Sales                         800,000               900,000

Cost of goods sold    (320,000.00)         (360,000.00)

Gross profit           480,000.00              540,000.00

Operating expenses (192,000.00)      (216,000.00)

Net income before tax 288,000.00     324,000.00

Net income after tax     201,600.00       226,800.00

Income tax expense (30%)

                               (86,400.00)        (97,200.00)

The income statement above is computed based on FIFO method. In 2020, the entity revised its costing method from FIFO to Weighted average method. The 2018 and 2020 inventory under FIFO is greater than that of Weighted average method by Php20,000r and Php30,000, respectively. In 2019 inventory under weighted average is greater than that of FIFO method by Php15,000.

Problem 1: How much is the net effect on retained earnings caused by the change in accounting policy

Option 1: 24,500.00

Option 2: 45,000.00

Option 3: 35,000.00

Option 4: 31,500.00

Option 5: None of the choices

Problem 2: How much is the net income after tax in 2020?

Option 1: 170,100.00

Option 2: 191,100.00

Option 3: 233,100.00

Option 4: 212,100.00

Option 5: None of the choices