Question

A chain of supermarkets specializing in gourmet food, has been using the average cost method to value its inventory. During the current year, the company changed to the first-in, first-out method of inventory valuation. The president of the company reasoned that this change was appropriate since it would more closely match the flow of physical goods. This change should be reported on the financial statements as A. Change in accounting estimate. B. Affecting only future periods. C. Cumulative-effect type accounting change. D. Correction of an error.

Answer 1

Answer: Affecting only future periods.

Explanation:

From the question, we are informed that a chain of supermarkets specializing in gourmet food, that has been using the average cost method to value its inventory changed to the FIFO method in the current year.

This change should be reported on the financial statements as a retroactive effect type of an accounting change. This is necessary because it affects future period and in order to maintain comparability and consistency.