In 2017, Frost Company, which began operations in 2015, decided to change from LIFO to FIFO because management believed that FIFO better represented the flow of their inventory. Management prepared the following analysis showing the effect of this change:

Frost reported net income of $2,500,000, $2,400,000, and $2,100,000 in 2015, 2016, and 2017, respectively. The tax rate is 30%.
Required:
1. Prepare the journal entry necessary to record the change.
2. What amount of net income would Frost report in 2015, 2016, and 2017?
3. If Frost€™s employees received a bonus of 10% of income before deducting the bonus and income taxes in 2015 and 2016, what would be the effect on net income for 2015, 2016, and 2017?

Transcribed Image Text:

Ending Inventory UFro Cumulative Difference FIFO 12/31/2015 $240,000 $273,000 $33,000 12/31/2016 245,000 301,000 56,000 12/31/2017 256,000 328,000 72,000