When a firm changed its method of accounting for inventory from LIFO to FIFO in 2011, it decided that the 2011 financial statements should be shown comparatively with the 2010 results.
Which of the following statements concerning reporting the change in the retained earnings statement is correct?
A) No direct change to retained earnings is needed since earnings for both years have been adjusted to reflect the change.
B) Only the January 1, 2010, retained earnings balance is reported at a different amount to reflect the effects of the change in earnings.
C) Only the January 1, 2011, retained earnings balance is reported at a different amount to reflect the effects of the change in earnings.
D) Both the January 1, 2010, and January 1, 2011, retained earnings balances are reported at different amounts to reflect the effects of the change in earnings before those respective dates.

Question

Quizplus · Accepted Answer

Both the January 1, 2010, and January 1, 2011, retained earnings balances are reported at different amounts to reflect the effects of the change in earnings before those respective dates. This is because the change in accounting method affects the beginning balances of each year, not just the earnings for each year.

When a Firm Changed Its Method of Accounting for Inventory