During the third quarter of its 20X7 fiscal year Press Compa

During the third quarter of its 20X7 fiscal year, Press Company is considering the different methods of reporting accounting changes on its interim segments. Preliminary data are available for the third quarter of 20X7, ending on September 30, 20X7, prior to any adjustments required for any accounting changes. The company\'s tax rate is 40 percent of income. Selected interim data for the company, in thousands of dollars, follow: Earnings from Operations, Before Tax Net Gross Net Quarter Ended 20X7: Sales Profit Earnings March 31 June 30 September 30 (preliminary) $392 417 431 $115 $ 22 $13.2 31 18.6 19.8 133 20X6: March 31 June 30 September 30 December 31 398 427 406 388 121 133 130 116 13.2 19.8 19.2 19.2 32 32 Required: For the following independent cases, present the company\'s interim financial data for the three quarters of 20X7 and the comparative data for 20x6, assuming that in a meeting on the last day of the third quarter of 20X7, the company decides to make the specified accounting change

Solution

a. A change in accounting principle of FIFO to LIFO requires the retrospective application of the newly adopted principle to the earliest balance sheet presented and then all subsequent financial reports are adjusted to the new method. The selected interim data in the problem was computed using the FIFO method. Adjusting each interim period for the difference in cost of goods sold under LIFO, with its related direct effect of the tax impact (40 percent), results in the following comparative interims: Quarter Ended Net Sales Gross Profit Operating Expenses Earnings from Operations, Before Tax   Net Earnings 20X7:     March 31 $392 $105 $93 $12 $7.20     June 30          417              105           86                 19    11.40     September 30          431              119         100                 19    11.40 20X6:     March 31          398              109           99                 10      6.00     June 30          427              120         100                 20    12.00     September 30          406              105           98                   7      4.20     December 31          388              107           84                 23    13.80 Gross profit = Net sales - COGS (LIFO) Operating Expenses = Gross Profit - EBT s given in qusetion data FIFO earnings from operations before tax = Gross Profit - Operating Expenses Net Earnings is EBT net of 40% tax