Question

On December 31, 2013 Dean Company changed its method of accounting for inventory from weighted average cost method to the FIFO method. This change caused the 2013 beginning inventory to increase by $630,000. The cumulative effect of this accounting change to be reported for the year ended 12/31/13, assuming a 40% tax rate, is

a. $630,000.
b. $378,000.
c. $252,000.
d. $0.

Answer 1

The cumulative effect of the accounting change for Dean Company's inventory from the weighted average cost method to the FIFO method is $252,000. Therefore, the correct answer is c. $252,000.

Step-by-step explanation:

When a company changes its method of accounting for inventory, it needs to report the cumulative effect of the change. In this case, Dean Company changed from the weighted average cost method to the FIFO method, and the change resulted in an increase of $630,000 in the 2013 beginning inventory.

To determine the cumulative effect, we need to calculate the difference in taxes due to the change in inventory value.

The increase in the beginning inventory of $630,000 would be treated as a taxable income, resulting in additional taxes. The tax rate is 40%, so the cumulative effect of this accounting change would be $630,000 x 40% = $252,000.

Therefore, the correct answer is c. $252,000.