Zehms Company began operations in 2008 and adopted weighted-average pricing for inventory. In 2010, in accordance with other companies in its industry, Zehms changed its inventory pricing to FIFO. The pretax income data is reported below.
Year Weighted-Average FIFO
2008 370,000 395,000
2009 390,000 420,000
2010 410,000 460,000
Instructions:
a) What is Zehms net income in 2010? Assume a 35% tax rate in all years.
b) Compute the cumulative effect of the change in accounting principle from weighted-average to FIFO inventory pricing.
c) Show comparative income statements for Zehms Company, beginning with income before income tax, as presented on the 2010 income statement.