Butler Products Decided in 2020 to Change Inventory Methods to More

question 103

Multiple Choice

Butler Products decided in 2020 to change inventory methods to more effectively report its results of operations. In the past, management has measured its ending inventories by the average-cost method and they now believe that FIFO is a better representation of its profitability. $$\begin{array} { c c c } \underline{\text { Year Ended } }& \underline{ \text { FIFO Inventory }} & \underline{ \text { Average-Cost Inventory} } \\\text { December 31,2018 } & \$ 250,000 & \$ 195,000 \\\text { December 31, 2019 } & 390,000 & 329,000 \\\text { December 31,2020 } & 240,000 & 190,000\end{array}$$
Ignoring income tax, which one of the following journal entries correctly records the change in the accounting principle at January 1, 2020?

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Definitions:

Automatic Stabilizer

Economic policies and programs, such as unemployment insurance and progressive taxation, that automatically adjust to counteract economic fluctuations without the need for explicit government intervention.

Unemployment Benefits

Payments made by the government to unemployed individuals, intended to provide a source of income while they seek new employment.

Stabilization Policy

A government strategy aimed at managing economic cycles by adjusting fiscal policy or monetary policy to stabilize the economy.

Aggregate Demand

Aggregate demand is the total demand for all goods and services in an economy at a given overall price level and in a given time period.