Hondo Company began operations several years ago and has used the average-cost method of inventory valuation since its inception. In 2019, it decides to switch to the FIFO method. You are provided with the following information.

Net Income Excess of Average

Under Cost over FIFO Cost Net Income

Average Cost Goods Sold (Pretax) FIFO Basis

Years Prior to 2017 $370,000 $72,000

2017 340,000 60,000

2018 320,000 44,000

2019 $380,000

Instructions:

1. Prepare the journal entry to record the change from the Average Cost method to the FIFO method on January 1, 2019.

2. Before the change from Average Cost to FIFO, the Retained Earnings balance on January 1, 2017, was $370,000. The tax rate for all years is 30%. No dividends were paid during the years. Prepare the comparative statement of retained earnings, reflecting the change to FIFO, for 2017, 2018, and 2019. Assume any tax liability/asset associated with the change is recorded as an adjustment to deferred taxes.