Question

On December 31, 2021, Oriole, Inc. appropriately changed its inventory valuation method to FIFO cost from weighted-average cost for financial statement and income tax purposes. The change will result in a $3050000 increase in the beginning inventory at January 1, 2021. Assume a 40% income tax rate. The cumulative effect of this accounting change on beginning retained earnings is:

Answer 1

The cumulative effect of this accounting change on beginning retained earnings is $1,830,000.

Step-by-step explanation:

Acording to the data we have the following:

increase in beginning inventory= $3,050,000

income tax rate=40%

Hence, to calculate the the cumulative effect we have to use the following formula:

cumulative effect = increase in beginning inventory *(1- tax rate)

=$3,050,000*(1-0.40)

=$1,830,000.

The cumulative effect of this accounting change on beginning retained earnings is $1,830,000.