On December 31,2014,Ohio Corporation appropriately changed its inventory valuation method to FIFO cost from LIFO cost for both financial statement and income tax purposes.The change will result in a $140,000 increase in the beginning inventory at January 1,2014.Assume a 30 percent income tax rate.The cumulative effect of this accounting change Ohio for the year ended December 31,2014,is
A) $0.
B) $42,000.
C) $98,000.
D) $140,000.

Question

Quizplus · Accepted Answer

The cumulative effect of the accounting change involves adjusting the beginning inventory at the date of change by the difference between the LIFO and FIFO ending inventory. In this case, the beginning inventory increased by $140,000, which means that the ending inventory under LIFO was $140,000 lower than under FIFO. Therefore, the cumulative effect of the accounting change is a one-time adjustment to retained earnings of $140,000 before taxes, or $98,000 after taxes ($140,000 x 0.30).

On December 31,2014,Ohio Corporation Appropriately Changed Its Inventory Valuation Method