Garner Company began operations on January 1, 2010, and uses the average cost method of pricing inventory. Management is contemplating a change in inventory methods for 2013. The following information is available for the years 2010–2012.
Net Income Computed Using
Average Cost Method FIFO Method LIFO Method
2010 $15,000 $20,000 $12,000
2011 18,000 24,000 14,000
2012 20,000 27,000 17,000
On January 1, 2012, Garner issued 10-year, $200,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 30 shares of Garner common stock. The company has had 10,000 common shares outstanding throughout its life. None of the bonds have been exercised as of the end of 2013. (Ignore tax effects.)
Click here to download the Excel workbook containing the spreadsheet you will need for this exercise.
1. Using the spreadsheet Journal Entries, prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2013.
2. Assume Garner Company used the LIFO method instead of the average cost method during the years 2010–2012. In 2013, Garner changed to the FIFO method. Using the spreadsheet Journal Entries, prepare the journal entry necessary to record the change in accounting principle.
3. Assuming Garner had the accounting change described in (2), Garner’s income in 2013 was $30,000. Compute basic and diluted earnings per share for Garner Company for 2013. Show how income and EPS will be reported for 2013 and 2012.