On December 31, 2011 Dean Company changed its method of accounting for inventory from the average cost method to the FIFO method.This change caused the 2011 beginning inventory to increase by $420,000.The cumulative effect of this accounting change to be reported for the year ended 12\31\11, assuming a 40% tax rate, is

Question

Quizplus · Accepted Answer

The cumulative effect of the accounting change is the difference between the old and new methods applied to the beginning inventory balance. The increase in beginning inventory of $420,000 has a tax effect of $168,000 (40% tax rate), resulting in a cumulative effect of $252,000 ($420,000 - $168,000). Therefore, the correct answer is B.

On December 31, 2011 Dean Company Changed Its Method of Accounting