1. Read FAS B AS C 250- 10- S99 to respond to the following question. AS CO Recordings has decided to change its inventory system from the LIFO method to the FIFO method for the 2015 fiscal year. Because it does not carry much inventory, the change in principle does not have a material effect on the financial statements of prior periods. Accordingly, it plans to not adjust comparative financial statements presented, but rather report the cumulative effect of the change through retained earnings as of the beginning of the 2015 fiscal year. Is this approach permissible? If not, how must AS CO Recordings report this change in principle?
2. Read FAS B AS C 250-10-45 to respond to the following question. Basty Needleworks, a calendar-year firm, has decided to change its inventory system from the FIFO method to the LIFO method. It made this decision in July 2015, and thus plans on reporting under LIFO for the first time in its third quarter of 2015 filings. Based on the impracticability rules associated with retrospective application, it plans to use the prospective method of reporting for the change in principle beginning in the third quarter. Is this approach permissible? If not, how must Basty report this change in principle?