Change in inventory costing methods; comparative income statements
Response to the following problem:
The Cecil-Booker Vending Company changed its method of valuing inventory from the average cost method to the FIFO cost method at the beginning of 2016. At December 31, 2015, inventories were $120,000 (average cost basis) and were $124,000 a year earlier. Cecil-Booker's accountants determined that the inventories would have totaled $155,000 at December 31, 2015, and $160,000 at December 31, 2014, if determined on a FIFO basis. A tax rate of 40% is in effect for all years
One hundred thousand common shares were outstanding each year. Income from continuing operations was $400,000 in 2015 and $525,000 in 2016. There were no discontinued operations either year
Required:
1. Prepare the journal entry to record the change in accounting principle. (All tax effects should be reflected in the deferred tax liability account.)
2. Prepare the 2016-2015 comparative income statements beginning with income from continuing operations. Include per share amounts.