Fava Company began operations in Year $1$ and used the LIFO inventory method for both financial reporting and income taxes. At the beginning of Year $2,$ the anticipated cost trends in the industry had changed, so that it adopted the FIFO method for both financial reporting and income taxes. Fava reported revenues of $$300,000$ and $$270,000$ in Year $2$ and Year $1,$ respectively. Fava reported expenses $($excluding income tax expense$)$ of $$125,000$ and $$120,000$ in Year $2$ and Year $1,$ which included cost of goods sold of $$55,000$ and $$45,000,$ respectively. An analysis indicates that the FIFO cost of goods sold would have been lower by $$8,000$ in Year $1.$ The tax rate is $21\%.$ Fava has a simple capital structure with $15,000$ shares of common stock outstanding during Year $1$ and Year $2.$ It paid no dividends in either year.

Required:

Prepare the journal entry to reflect the change.

At the end of Year $2,$ prepare the comparative income statements for Year $1$ and Year $2.$ Notes to the financial statements are not necessary.

At the end of Year $2,$ prepare the comparative retained earnings statements for Year $1$ and Year $2.$