Rockwell Corporation uses a periodic inventory system and has used the FIFO cost method since inception of the company in 1976. In 2011, the company decided to switch to the average cost method. Data for 2011 are as follows:
Additional Information:
a. The company's effective income tax rate is 40% for all years.
b. If the company had used the average cost method prior to 2011, ending inventory for 2010 would have been $130,000.
c. 7,000 units remained in inventory at the end of 2011.
Required:
1. Ignoring income taxes, prepare the 2011 journal entry to adjust the accounts to reflect the average cost method.
2. What is the effect of the change in methods on 2011 net income?