When Changing from the Average Cost Method to FIFO, the Company

question 89

Multiple Choice

When changing from the average cost method to FIFO, the company:

• A) Includes in current year's income the cumulative after-tax difference that would have resulted if the company had used FIFO in all prior years.
• B) Revises comparative financial statements.
• C) Records a journal entry to adjust the book balances from their current amounts to what those balances would have been using FIFO.
• D) All of these answer choices are correct.

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Definitions:

Value Basis

The underlying method used to determine the value of assets or liabilities, such as historical cost or market value.

Joint Costs

Costs incurred in the process of producing two or more products simultaneously where the costs cannot be individually attributed to a single product.

Product M

Refers to a specific good or service offered by a company, designated as "M" for differentiation.

Controllable Costs

Expenses that a manager or business unit has the authority to influence or change, such as materials or labor.