Koopman Company began operations on January 1, 2006 and uses the FIFO inventory method for financial reporting and the average-cost inventory method for income taxes. At the beginning of 2008 the company decided to switch to the average-cost inventory method for financial reporting. The company had previously reported the following financial statements for 2007:

An analysis of the accounting records discloses the following cost of goods sold under the FIFO and average-cost inventory methods:

There are no indirect effects of the change in inventory method. Revenues for 2008 total $130,000; operating expenses for 2008 total $30,000. The company is subject to a 30% income tax rate in all years; it pays the income taxes payable of a current year in the first quarter of the next year. The company had 10,000 shares of common stock outstanding during all years; it paid dividends of $1 per share in 2008. At the end of 2008 the company had cash of $10,000, inventory of $24,000, other assets of $70,800, and accounts payable of ?. The company desires to show financial statements for the current year and previous year in its 2008 annual report.
Required
1. Prepare the journal entry to reflect the change in methods at the beginning of 2008. Show supporting calculations.
2. Prepare the 2008 annual report. Notes to the financial statements are not necessary. Show supportingcalculations.

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Income Statement Retained Earnings Statement $100,000 Beginning retained eamings $15,000 Cost of goods sold Gross profit 60,000) Add: Net income $25,500 (6,000) $19,500 S 40,000 (25,000) Less: Dividends Income before income taxes 15,000 Ending retained eamings Income tax expense Net income 4,500 10,500 S 1.05 Earnings per share Balance Sheet (12/31/07) Accounts payable Income taxes payable $9,000 $3,000 1,800 38,000 64,100 Deferred tax liability Other assets Common stock, no par 111, 100 $111,100 FIFO Cost of Goods Sold $50,000 60,000 70,000 Average Cost 2006 2007 2008 of Goods Sold $57,000 69,000 80,000