Question

On December 31, 2018 Sandhill Company changed its method of accounting for inventory from weighted average cost method to the FIFO method. This change caused the 2018 beginning inventory to increase by $940000. The cumulative effect of this accounting change to be reported for the year ended 12/31/18, assuming a 30% tax rate, is Entry field with incorrect answer $658000. $282000. $0. $940000.

Answer 1

$658,000

Step-by-step explanation:

Given that

Increase in beginning inventory = $940,000

Tax rate = 30%

The computation of the cumulative effect of this accounting change to be reported is shown below:

= Increase in beginning inventory × (1 - tax rate)

= $940,000 × (1 - 0.30)

= $940,000 × 0.70

= $658,000

Hence, the cumulative effect of this accounting change to be reported for the year ended is $658,000

Therefore, the first option is correct