Exercise 22-7

Below is the net income of Headland Instrument Co., a private corporation, computed under the three inventory methods using a periodic system.

		FIFO		Average Cost		LIFO
2015		$27,400		$24,200		$21,400
2016		28,300		23,500		19,800
2017		31,100		29,100		25,700
2018		33,500		29,200		25,000

(Ignore tax considerations.) (a) Assume that in 2018 Headland decided to change from the FIFO method to the average-cost method of pricing inventories. Prepare the journal entry necessary for the change that took place during 2018, and show net income reported for 2015, 2016, 2017, and 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

		2018		2017		2016		2015
Net income		$		$		$		$

(b) Assume that in 2018 Headland, which had been using the LIFO method since incorporation in 2015, changed to the FIFO method of pricing inventories. Prepare the journal entry necessary to record the change in 2018 and show net income reported for 2015, 2016, 2017, and 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

		2018		2017		2016		2015
Net income		$		$		$		$