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Millington Materials is a leading supplier of building equipment, building products, materials, and timber for...

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Accounting

Millington Materials is a leading supplier of building equipment, building products, materials, and timber for sale, with over 200 branches across the Mid-South. On January 1, 2021, management decided to change from the average inventory costing method to the FIFO inventory costing method at each of its outlets. The following table presents information concerning the change. The income tax rate for all years is 25%.

Income before Income Tax
FIFO Average Cost Difference
Before 2020 $ 25 million $ 18 million $ 7 million
2020 28 million 15 million 13 million
2021 20 million 19 million 1 million

Required: 1. Prepare the journal entry to record the change in accounting principle. 2. Determine the net income to be reported in the 20212020 comparative income statements. 4. Indicate the affect of the change in the 20212020 comparative statements of shareholders equity assuming cash dividends were $7.00 million each year and that no dividends were paid prior to 2020.

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