Karter Lithograph Company (KLC) recently conducted an extensive review of its accounting and reporting policies. The following
Question:
Karter Lithograph Company (KLC) recently conducted an extensive review of its accounting and reporting policies. The following accounting changes are an outgrowth of that review:
1. KLC has a patent on a copier design. The patent has been amortized on a straight-line basis since it was acquired at a cost of $400,000 in 2018. During 2021, KLC decided that the benefits from the patent would be experienced over a total of 13 years rather than the 20-year legal life now being used to amortize its cost.
2. At the beginning of 2021, KLC changed its method of valuing inventory from the FIFO cost method to the average cost method. At December 31, 2020 and 2019, KLC’s inventories were $560 and $540 million, respectively, on a FIFO cost basis but would have totaled $500 and $490 million, respectively, if determined on an average cost basis. KLC’s income tax rate is 25%.
Required:
Prepare all journal entries needed in 2021 related to each change. Also, briefly describe any other measures KLC would take in connection with reporting the changes.
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Expert Answer:
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