Chapter 22 solutions to exercises and problems

# Chapter 22 solutions to exercises and problems - EXERCISE...

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EXERCISE 22-1 (a) The net income to be reported in 2008, using the retrospective approach, would be computed as follows: Income before income tax \$700,000 Income tax (35% X \$700,000) 245,000 Net income \$455,000 (b) Construction in Process. ................................................................ 190,000 Deferred Tax Liability (\$190,000 X 35%). ........................... 66,500 Retained Earnings. ............................................................... 123,500* *(\$190,000 X 65% = \$123,500) EXERCISE 22-2 (a) Inventory. .............................................................................................. 14,000* Retained Earnings. ..................................................................... 14,000 *(\$19,000 + \$23,000 + \$25,000) – (\$15,000 + \$18,000 + \$20,000) (b) Net Income (FIFO) 2005 \$19,000 2006 23,000 2007 25,000 (c) Inventory. ............................................................................................. 24,000* Retained Earnings. .................................................................... 24,000 *(\$19,000 + \$23,000 + \$25,000) – (\$12,000 + \$14,000 + \$17,000)

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EXERCISE 22-3 (a) TAVERAS CO. Income Statement For the Year Ended December 31 LIFO 2005 2006 2007 Sales \$3,000 \$3,000 \$3,000 Cost of goods sold. ..................................................... 800 1,000 1,130 Operating expenses. .................................................. 1,000 1,000 1,000 Net income. ....................................................... \$1,200 \$1,000 \$ 870 Income Statement For the Year Ended December 31 FIFO 2005 2006 2007 Sales \$3,000 \$3,000 \$3,000 Cost of goods sold. ..................................................... 820 940 1,100 Operating expenses. .................................................. 1,000 1,000 1,000 Net income. ....................................................... \$1,180 \$1,060 \$ 900 (b) TAVERAS CO. Income Statement For the Year Ended December 31 2007 2006 As adjusted (Note A) Sales \$3,000 \$3,000 Cost of goods sold. ..................................................... 1,100 940 Operating expenses. .................................................. 1,000 1,000 Net income. ....................................................... \$ 900 \$1,060
EXERCISE 22-3 (Continued) (c) Note A: Change in Method of Accounting for Inventory Valuation On January 1, 2007, Taveras elected to change its method of valuing its inventory to the FIFO method, whereas in all prior years inventory was valued using the LIFO method. The new method of accounting for inventory was adopted because it better reflects the current cost of the inventory on the balance sheet and comparative financial statements of prior years have been adjusted to apply the new method retrospectively. The following financial statement line items for fiscal years 2007 and 2006 were affected by the change in accounting principle. 2007

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Chapter 22 solutions to exercises and problems - EXERCISE...

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