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Prepare the statement of retained earnings

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Reference no: EM132360508

Question :

Port Arthur Company decided to change from LIFO to Average Cost inventory costing, effective January 1, 2014. The following data were available:

Year

Net Income using LIFO

Excess LIFO COGS over Average Cost Pretax

Net Income using Average Cost

2013

$42,000

8,000

 

2013

56,000

10,000

 

2014

 

 

81,200

The income tax rate is 30% for all periods. The company began operations on January 1, 2012, and has paid no dividends since inception. Thus, retained earnings on January 1, 2013, on a LIFO basis were $42,000.

Required:

a. Prepare the journal entry to reflect the change from the LIFO to the Average Cost flow assumption on January 1, 2014.

b. Prepare the statement of retained earnings, as it would appear in the comparative 2013-2014 financial statements, reflecting the change in accounting principle.

Reference no: EM132360508

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