Question: Barden Inc operates a retail chain that specializes in baby

Barden, Inc., operates a retail chain that specializes in baby clothes and accessories that are made to its specifications by a number of overseas manufacturers. Barden began operations in 2005 and has always employed the FIFO method to value its inventory. Since 2005, prices have generally declined as a result of intense competition among Barden’s suppliers. In 2013, however, prices began to rise significantly as these suppliers succumbed to international pressure and addressed sweatshop conditions in their factories. The improved working conditions and benefits led to increased costs that are being passed on to Barden. In turn, Barden’s management believes that FIFO no longer is the best method to value its inventories and thus switched to LIFO on January 1, 2014. This accounting change was justified because of LIFO’s better matching of current costs with current revenues. Barden judges it impractical to apply the LIFO method on a retrospective basis because the company never maintained records on a LIFO basis. As a result of this change, ending inventory was reported at $275,000 instead of its $345,000 FIFO value. Barden reported 2014 net income of $825,000; the company’s income tax rate is 35%. Barden has 10,000 shares of stock outstanding.

1. How should Barden’s 2014 comparative financial statements reflect this change in accounting principle?
2. Prepare whatever disclosure is required under current GAAP as a result of thischange.

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  • CreatedSeptember 10, 2014
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