Delta Co. began operations on January 1, 20X1. During 20X1 and 20X2, the company used the weighted-average
Question:
Delta Co. began operations on January 1, 20X1. During 20X1 and 20X2, the company used the weighted-average method for its inventory costing. In 20X3, the company changed its method of inventory costing to FIFO so that its financial statements would be more comparable to those of other firms in its industry. If the FIFO method had been used, Delta’s cost of goods sold would have been $45,000 less in 20X1 and $35,000 less in 20X2. Delta’s income statements, as originally presented, appear below. Delta’s tax rate is 21%.
20X1 | 20X2 | 20X3 | |||||||
Sales | $ | 1,000,000 | $ | 1,100,000 | $ | 1,210,000 | |||
Cost of goods sold | 645,000 | 695,000 | 726,000 | ||||||
Gross profit | 355,000 | 405,000 | 484,000 | ||||||
Selling, general and administrative expenses | 250,000 | 255,000 | 265,000 | ||||||
Depreciation expense | 55,000 | 55,000 | 55,000 | ||||||
Income before tax | 50,000 | 95,000 | 164,000 | ||||||
Income tax expense | 10,500 | 19,950 | 34,440 | ||||||
Net income | $ | 39,500 | $ | 75,050 | $ | 129,560 | |||
Required:
Assume that for comparison purposes Delta presents 20X1 and 20X2 income statements in its 20X3 annual report. Revise Delta’s 20X1 and 20X2 income statements to appear as they should in the 20X3 annual report.
Advanced Financial Accounting
ISBN: 978-0078025624
10th edition
Authors: Theodore E. Christensen, David M. Cottrell, Richard E. Baker