Question

During the fourth quarter of 2014, ABBA Fabrics, Inc., elected to change its method of valuing inventory to the weighted average cost (“WAC”) method, whereas in all prior years inventory was valued using the last-in, first-out (LIFO) method. The company determined that the WAC method of accounting for inventory is preferable as the method better reflects ABBA’s inventory at current costs and enhances the comparability of its financial statements by changing to the predominant method utilized in its industry. Condensed financial statements for 2014 (using WAC) and 2013 (as originally reported) appear below. Inventory as originally reported at December 31, 2013 ($77,907), and December 31, 2012 ($127,574), increases by $36,382 and $37,432 respectively under WAC.


Required:
1. Restate the 2013 financial statements as they should appear for comparative purposes in the 2014 annual report.
2. Draft the disclosures required by current GAAP related to thisrestatement.


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  • CreatedSeptember 10, 2014
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