(Change in Principle—Inventory Methods) Holder-Webb Company began operations on January 1, 2005, and uses the average cost method of pricing inventory. Management is contemplating a change in inventory methods for 2008. The following information is available for the years 2005-2007.

Instructions (Ignore all tax effects.)

(a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2008.

(b) Determine net income to be reported for 2005, 2006, and 2007, after giving effect to the change in accounting principle.

(c) Assume Holder-Webb Company used the LIFO method instead of the average cost method during the years 2005-2007. In 2008, Holder-Webb changed to the FIFO method. Prepare the journal entry necessary to record the change in principle.

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2005 2006 2007 Average Cost Method $15,000 18,000 20,000 Net Income Computed Using FIFO Method $19,000 23,000 25,000 LIFO Method $12,000 14,000 17,000