On December 31, 2011, Prince Company Appropriately Changed to the FIFO

question 11

Multiple Choice

On December 31, 2011, Prince Company appropriately changed to the FIFO cost method from the weighted-average cost method for financial statement and income tax purposes. The change will result in a $700,000 increase in the beginning inventory at January 1, 2011. Assuming a 40 percent income tax rate and that no comparative financial statements for prior years are reported, the cumulative effect of this accounting change reported for the year ended December 31, 2011, is

• A) $700,000.
• B) $350,000.
• C) $420,000.
• D) $280,000.

---

Definitions:

Sale-of-Goods Contract

A legal agreement where a seller transfers or agrees to transfer ownership of goods to a buyer for a price.

Unascertained Goods

Items for sale that have not been specifically identified at the time of contract formation.

Server System

A computer system or software that provides services, data, or resources to other computers, known as clients, over a network.

Merchantable Quality

Refers to the basic level of quality and functionality that consumers can reasonably expect from a specific good being sold.