Exercise 22-2

Teal Company began operations on January 1, 2015, and uses the average-cost method of pricing inventory. Management is contemplating a change in inventory methods for 2018. The following information is available for the years 2015-2017.

Net Income Computed Using

Average-Cost Method

FIFO Method

LIFO Method

2015$16,000$19,100$12,080201618,04020,82014,100201720,01024,80016,840

(a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation

Debit

Credit

(b) Determine net income to be reported for 2015, 2016, and 2017, after giving effect to the change in accounting principle.

Net Income

2015$

2016$

2017$

(c) Assume Teal Company used the LIFO method instead of the average cost method during the years 2015-2017. In 2018, Teal changed to the FIFO method. Prepare the journal entry necessary to record the change in principle. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation

Debit

Credit