Brown Corporation had consistently reported its income by the cash method.The corporation should have used the accrual method because inventories are material to the business.In 2012,Brown timely filed a request to change to the accrual method.At the beginning of 2012,Brown had accounts receivable of $90,000.Also,Brown had merchandise on hand with a cost of $120,000 and accounts payable for merchandise of $37,500.The accounts receivable,inventory,and accounts payable balance per books were zero.Determine the adjustment to income due to the change in accounting method and the amount that is allocated to 2012.
Adjustment due to the change:
The change is from a clearly incorrect method to a correct method.Therefore,the positive adjustment must be spread over four years.The company must add $43,125 ($172,500 divided by 4)to 2012 income.

Question

Brown Corporation had consistently reported its income by the cash method.The corporation should have used the accrual method because inventories are material to the business.In 2012,Brown timely filed a request to change to the accrual method.At the beginning of 2012,Brown had accounts receivable of $90,000.Also,Brown had merchandise on hand with a cost of $120,000 and accounts payable for merchandise of $37,500.The accounts receivable,inventory,and accounts payable balance per books were zero.Determine the adjustment to income due to the change in accounting method and the amount that is allocated to 2012.
Adjustment due to the change:
  The change is from a clearly incorrect method to a correct method.Therefore,the positive adjustment must be spread over four years.The company must add $43,125 ($172,500 divided by 4)to 2012 income.

Quizplus · Accepted Answer

The Answer of Brown Corporation had consistently reported its income by the cash method.The corporation should have used the accrual method because inventories are material to the business.In 2012,Brown timely filed a request to change to the accrual method.At the beginning of 2012,Brown had accounts receivable of $90,000.Also,Brown had merchandise on hand with a cost of $120,000 and accounts payable for merchandise of $37,500.The accounts receivable,inventory,and accounts payable balance per books were zero.Determine the adjustment to income due to the change in accounting method and the amount that is allocated to 2012.
Adjustment due to the change:
  The change is from a clearly incorrect method to a correct method.Therefore,the positive adjustment must be spread over four years.The company must add $43,125 ($172,500 divided by 4)to 2012 income.

Brown Corporation Had Consistently Reported Its Income by the Cash