The average cost inventory method for income taxes

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Koopman Company began operations on January 1, 2009 and uses the FIFO inventory method for financial reporting and the average-cost inventory method for income taxes. At the beginning of 2011, the company decided to switch to the average-cost inventory method for financial reporting. The company had previously reported the following financial statements for 2010:

 

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An analysis of the accounting records discloses the following cost of goods sold under the FIFO and average cost inventory methods:

There are no indirect effects of the change in inventory method. Revenues for 2011 total $130,000; operating expenses for 2011 total $30,000. The company is subject to a 30% income tax rate in all years; it pays the income taxes payable of a current year in the first quarter of the next year. The company had 10,000 shares of common stock outstanding during all years; it paid dividends of $1 per share in 2011. At the end of 2011, the company had cash of $10,000, inventory of $24,000, other assets of $70,800, and accounts payable of?. The company desires to show financial statements for the current year and previous year in its 2011 annual report.


Required:
1. Prepare the journal entry to reflect the change in methods at the beginning of 2011. Show supporting calculations.2. Prepare the 2011 annual report. Notes to the financial statements are not necessary. Show supportingcalculations.

Reference no: EM13866401

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