Jack's Fireworks, which was established in 2007, changed its method of accounting for inventories from the average cost method to the first-in, first-out (FIFO) method in 2009. Cost of goods sold for the periods 2007-2009 under FIFO and the average cost method were:
Year FIFO AVERAGE Cost Difference
2007 $120,000 $110,000 $10,000
2008 140,000 128,000 12,000
2009 150,000 144,000 6,000
Jack's Fireworks is subject to a 30% income tax rate. In its income statement for the year ended December 31, 2009, Jack's would report the cumulative effect of a change in accounting principle, net of income taxes, of: