During 2018, Hoffman Co. decides to use FIFO to account for its inventory transactions. Previously, it had used LIFO.
A) Hoffman is not required to make any accounting adjustments.
B) Hoffman has made a change in accounting principle requiring retrospective adjustment.
C) Hoffman has made a change in accounting principle requiring prospective application.
D) Hoffman needs to correct an accounting error.

Question

Quizplus · Accepted Answer

Changing from LIFO to FIFO is a change in accounting principle that requires retrospective adjustment. This means that the financial statements for prior years also need to be adjusted to reflect the use of FIFO. Therefore, Hoffman needs to make accounting adjustments to reflect this change in accounting policy.