1. During 2020, FISHING Co decided that the weighted average method of accounting for inventory presented more fairly their financial position. Prior to 2020 they used the FIFO method to account for inventory. FISHING started business in 2016. The applicable tax rate for all years was 25%.

The following graph shows Ending Inventory under the old method of FIFO and what it would have been had the new method of Wtd Average been used for those years.

FIFO METHOD Ending Inventory

2016 $120,000

2017 $140,000

2018 $150,000

2019 $160,000

WTD AVERAGE Ending Inventory

2016 $130,000

2017 $150,000

2018 $170,000

2019 $200,000

Required

a. Are historical Retained Earnings overstated or understated?

b. Calculate the total difference between the 4 years both pre-tax and after tax.

c. Make the necessary journal entry for 2020 at the time of this change.

d. Assume Beginning Retained Earnings on Jan 1, 2019 under FIFO was $350,000 and 2019 FIFO net income was $100,000. Prepare both the 2020 and 2019 Restated Statement of Retained Earnings. Under FIFO, the beginning Retained Earnings balance was $450,000 for Jan 1, 2020. The correct weighted average income for 2020 was $150,000. (It may be easiest to begin with the 2020 statement).