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[Mollynana]

Nelia Company had used the weighted average method of inventory since it began its operation in 2019. Nelia decided to change to FIFO method for determining inventory costs at the beginning of 2021. The following schedule shows the net income and year-end inventory balances for the past two years 2019 and 2020:

2019

Net income using weighted average Year-end inventory-FIFO

P3,000,000

2020

P3,250,000

400,000

600,000

Year-end inventory-weighted average The merchandise inventory end in 2020 is 10,000 units.

250,000 500,000

The trial balance at December 31, 2021 included the following accounts:

Sales (at SP of P80/unit) Sales discount

P6,400,000

Purchases

64,000 6,480,000

Purchase discount

980,000

The inventory purchases during 2021 were as follows:

Purchases, 1st quarter ended

Units

Unit cost

20,000

30,000

40,000

P62

64

Purchases 2nd quarter ended

66

68

Purchases 3rd quarter ended Purchases 4th quarter ended

10,000

Nelia's accounting policy is to report inventory on its financial statements at the lower of cost or net realizable value, applied to total inventory.

inventory was P67 per unit and the estimated selling price was P70 per unit and Nelia has determined that on December 31, 2021, the replacement cost of its the estimated cost of disposal was P5. The normal profit margin is P8 per unit.

Questions:

Based on the above data, compute for the following: 1. Cumulative effect of the change in accounting policy in 2021.

a. Nil b. P100,000

c. P250,000 d. P150,000

2. Adjusted net income in 2020.

a. P2,950,000 b. P3,200,000

c. P3,350,000 d. P3,150,000

3.Merchandise inventory end of 2021 at cost.

a. P1,320,000 b. P2,000,000

C. P1,680,000 d. P2,320,000

 

[🤖]

To compute the cumulative effect of the change in accounting policy in 2021, we need to compare the inventory values under the weighted average method and the FIFO method.

Under the weighted average method, the year-end inventory balance for 2020 was P500,000.

Under the FIFO method, the year-end inventory balance for 2020 was P600,000.

The difference between the two methods is P600,000 - P500,000 = P100,000.

Therefore, the cumulative effect of the change in accounting policy in 2021 is P100,000.

Answer: b. P100,000

To calculate the adjusted net income in 2020, we need to subtract the change in inventory value due to the change in accounting policy from the reported net income.

The change in inventory value is P600,000 (under FIFO) - P500,000 (under weighted average) = P100,000.

Adjusted net income in 2020 = Reported net income in 2020 - Change in inventory value
= P3,250,000 - P100,000
= P3,150,000

Therefore, the adjusted net income in 2020 is P3,150,000.

Answer: d. P3,150,000

To calculate the merchandise inventory at the end of 2021 at cost, we need to consider the purchases made during the year and any adjustments for net realizable value.

Purchases in the 1st quarter = 20,000 units x P62/unit = P1,240,000
Purchases in the 2nd quarter = 30,000 units x P64/unit = P1,920,000
Purchases in the 3rd quarter = 40,000 units x P66/unit = P2,640,000
Purchases in the 4th quarter = 10,000 units x P68/unit = P680,000

Total purchases in 2021 = P1,240,000 + P1,920,000 + P2,640,000 + P680,000 = P6,480,000

Adjustment for net realizable value:
Inventory at lower of cost or net realizable value = P67 - P5 = P62/unit

Inventory at the end of 2021 = 10,000 units x P62/unit = P620,000

Therefore, the merchandise inventory at the end of 2021 at cost is P6,480,000 + P620,000 = P7,100,000.

Answer: Merchandise inventory end of 2021 at cost is P7,100,000.

Note: The options provided in the question do not match the calculated values.