3) If Merrimack Tractors and Mowers were to adopt FIFO as of January 1, 2008, how would this affect the financial statements (Balance Sheets, Income Statement, and Cash Flow)? You may assume the 10,000 per quarter of unit sales for 2008.

Tip:If we use FIFO in 2008, we have to retroactively adjust to FIFO in 2007. This is called an "accounting principle change". In other words, if we make changes going forward we need to show investors what the numbers would have looked like if we would have used the FIFO method all along. So be careful what you choose as starting value for inventory in 2008.

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