Second Thought Products STP began operations on

January 1 2015 #3329

Second Thought Products (STP) began operations on January 1, 2015, and adopted the FIFO
method of inventory valuation at that time. Management elected to change its inventory method
to the average- cost method effective January 1, 2018. The new method more fairly presents
the company’s financial position and results of operations. The following information is
available for the years ended December 31, 2015, through December 31, 2018. STP is subject
to a 40% income tax rate. The company still uses the FIFO method for income tax reporting.
Requireda. Compute the cumulative effect, net of tax, for the three-year period needed to record
a change from the FIFO method to the average-cost method.b. Prepare the journal entry to
record the change in accounting for inventory valuation.c. Indicate where STP should report the
net of tax cumulative effect, assuming that the first balance sheet presented is for the year
ended December 31, 2018.d. Indicate the cost of goods sold reported on the income statement
for 2015, 2016, 2017, and 2018.e. Assume that this change in principle is considered to be
impractical. Indicate the cost of goods on the income statement for 2015, 2016, 2017, and
2018.View Solution:
Second Thought Products STP began operations on January 1 2015

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