Question

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

A. Records a journal entry to adjust the book balances from their current amounts to what those balances would have been using FIFO.
B. Revises comparative financial statements.
C. 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.
D. All of these answer choices are correct.

Answer 1

Answer: B. Revises comparative financial statements.

Explanation:

When switching from a median Cost method to FIFO method. this sort of switch can always yield a major impact on all financial statements. Any organization which wishes to change would settle on the requirement to scrutinize whether it has to restate its financial data for previous years to reflect the new method or only apply the new method to the present and future years.