CHAPTER 8 ACCOUNTING CHANGES Accounting policy and accounting estimate Pproblera8-1 (AICPA Adapted) During 2021, Orca Company decided to inventory valuation to the weighted averag tax rate is 30%, from the FIFO change he income e method. T FIFO Weighted average 7,100,000 7,100,000 7,900,000 8,200,000. umulative effect of the January | inventory December 31 inventory What amount should be reported as the c accounting change for 2021? a. 420,000 increase b. 420,000 increase c. 600,000 increase d. 600,000 decrease Solution 8-1 Answer a . : FIFO inventory = January 1 7,100,000 Weighted average inventory ~ January 1 7,700,000 Cumulative effect 600,000 Cumulative effect after tax (70% x. 600,000) 420,000 The change from FIFO to weighted average isachangein accounting policy. The cumulative effect of the change accounting policy is an adjustment of retained earnings. 7 Inventory 600,000 Retained earnings 420,000 180,000 Income tax payable 101