On January 1,2015,JTC changed to the weighted-average cost method from the first-in,first-out (FIFO)cost method for inventory cost flow purposes.JTC can justify this as a change in policy.The change will result in a $120,000 decrease in the beginning inventory at January 1,2015.Ignoring income taxes,the cumulative effect of changing to the weighted-average method from the FIFO method must be reported by JTC in the 2015:

Question

Quizplus · Accepted Answer

When a company changes its inventory cost flow method, the cumulative effect of the change needs to be recorded as an adjustment to the beginning balance of retained earnings in the period of the change. Therefore, the correct option is B, which suggests that JTC should report the cumulative effect of $120,000 decrease in the beginning inventory at January 1, 2015, as a debit adjustment to the beginning balance of retained earnings on the statement of retained earnings. The income statement will not be affected by the change of inventory cost flow.

On January 1,2015,JTC Changed to the Weighted-Average Cost Method from the First-In,first-Out