Pace Instrument Corp., a small company that follows ASPE, began operations on January 1, 2020, and uses a periodic inventory system. The following net income amounts were calculated for Pace under three different inventory cost formulas:

Instructions

Answer the following, ignoring income tax considerations.

a. Assume that in 2023, Pace changed from the weighted average cost formula to the FIFO cost formula and it was agreed that the FIFO method provided more relevant financial statement information. Prepare the necessary journal entry for the change that took place during 2023, and provide all the information that is needed for reporting on a comparative basis.

b. Assume that in 2023, Pace, which had been using the LIFO method since incorporation in 2020, changed to the FIFO cost formula to comply with CPA Canada Handbook, Part II, Section 3031, because LIFO is not a permitted inventory cost flow assumption under GAAP. The company applies the new policy retrospectively. Prepare the necessary journal entry for the change, and provide all the information that is needed for reporting on a comparative basis.

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2020 2021 2022 2023 FIFO $26,000 30,000 28,000 34,000 Weighted Average Cost $24,000 25,000 27,000 30,000 LIFO $20,000 21,000 24,000 26,000