Eckert Company reported the following summarized annual data at the end of 2014: The income tax rate is 30%. The controller of the company is considering a switch from FIFO to average-cost. He has determined that on an average-cost basis, the ending inventory would have been $220,000.
Instructions
(a) Restate the summary information on an average-cost basis.
(b) What effect, if any, would the proposed change have on Eckert's income tax expense, net income, and cash flows?
(c) If you were an owner of this business, what would your reaction be to this proposed change?

Question

Eckert Company reported the following summarized annual data at the end of 2014:  The income tax rate is 30%. The controller of the company is considering a switch from FIFO to average-cost. He has determined that on an average-cost basis, the ending inventory would have been $220,000.
Instructions
(a) Restate the summary information on an average-cost basis.
(b) What effect, if any, would the proposed change have on Eckert's income tax expense, net income, and cash flows?
(c) If you were an owner of this business, what would your reaction be to this proposed change?

Quizplus · Accepted Answer

The Answer of Eckert Company reported the following summarized annual data at the end of 2014:  The income tax rate is 30%. The controller of the company is considering a switch from FIFO to average-cost. He has determined that on an average-cost basis, the ending inventory would have been $220,000.
Instructions
(a) Restate the summary information on an average-cost basis.
(b) What effect, if any, would the proposed change have on Eckert's income tax expense, net income, and cash flows?
(c) If you were an owner of this business, what would your reaction be to this proposed change?

Eckert Company Reported the Following Summarized Annual Data at the End