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Blossom Company began operations in 2018 and for simplicity reasons, adopted weighted-average pricing for inventory
Blossom Company began operations in 2018 and for simplicity reasons, adopted weighted-average pricing for inventory. In 2020, in accordance with other companies in its industry, Blossom changed its inventory pricing to FIFO. The pretax income data is reported below.
Weighted-Year Average FIFO
2018 $382.100 $398,800 2019 398,700 426,900 2020 421,100 466,900
Assume a 35% tax rate in all years.
What is Blossom's net income in 2020?
Compute the cumulative effect of the change in accounting principle from weighted-average to FIFO inventory pricing.
Net effect $
(c)
Show comparative income statements for Blossom Company. beginning with income before income tax, as presented on the 2020 income statement.
Income before income tax Income tax Net income
2020
$
$
2019
$
$
2018
$
$
Expert Solution
| a) Computation of Blossom's Net Income in 2020: | |
| Income before Income Tax | 466900 |
| Income Tax ($469000 X 35%) | 163415 |
| Net Income in 2020 | 303485 |
| b) Computation of Cumulative effect of the Change in Accounting Principle from Weighted Average to FIFO Inventory Pricing: | |||||
| Year | Weighted Average | FIFO | Diffrence | Tax Rate (35%) | Net Effect |
| 2018 | 382100 | 398800 | 16700 | ||
| 2019 | 398700 | 426900 | 28200 | ||
| Total | 44900 | 15715 | 29185 | ||
| c) Comparative Income Statement for Blossom Company: | |||
| 2020 | 2019 | 2018 | |
| Income before Income Tax | 466900 | 426900 | 466900 |
| Income Tax (35%) | 163415 | 149415 | 163415 |
| Net Income | 303485 | 277485 | 303485 |
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