Howl-O-Ween, Inc. sells costumes for dogs. The company started business in 2012 and adopted the LIFO cost method and periodic inventory system. Ignore taxes in this problem. The following information is available:

Purchases Sales

Inventory on hand, 1-1-12 2,000 units @ $ 8/unit $ 16,000

2012 purchases 16,000 units @ 14/unit 224,000

2012 sales ( 15,000) units @ 26/unit $ 390,000

Inventory on hand, 12-31-12 3,000

2013 purchases 24,000 units @ 20/unit 480,000

2013 sales(22,000) units @ 35/unit 770,000

Inventory on hand, 12-31-13 5,000

2014 purchases 28,000 units @ 25/unit 700,000

2014 sales (26,000) units @ 40/unit 1,040,000

Inventory on hand, 12-31-14 7,000

Requirement 1: Howl-O-Weens CEO, Lil A. Counting, doesnt like LIFO because we have to sell the most recently purchased inventory items first, leaving us with old inventory that customers wont want. Is Lil correct? Explain your answer.

Requirement 2: Determine COGS for 2012 and 2013 using LIFO.

Requirement 3: On January 1, 2014, Howl-O-Ween switched from LIFO to the FIFO method. This information is available:

____2012____ ____2013____ ____2014____

FIFO COGS $198,000 $422,000 $625,000

Determine the January 1, 2014 entry to record the change in inventory method.

Requirement 4: Assume Howl-O-Ween switched to FIFO on January 1, 2014. Determine the balance in retained earnings on December 31, 2014. Net income (using LIFO) for 2012 and 2013 was $80,000 and $230,000, respectively. Operating expenses were $100,000 each year.