In 2012, ABC Company decides to switch from FIFO to LIFO Inventory. ABC Company went into service in 2011. Record the prior year adjustment for FY 2012-Tax rate used in 2096. Hint: This equation was taught in Intro to Accounting for calculating cost of goods sold. Exercises and problems may exclude one of the following, but you can plug in the number if you remember this equation FIFO LIFO Inventory Balance 1/1/2011 Ending Inventory 12/31/2011 Purchases During the Vear Cost of Goods Sold 20,00O 40,00o 0,000 30,000 20,o00 30,ooo ,000 40,000 Beginning Inventory Purchases Ending Inventory Cost of Goods Sold Retained Earnings Income Tax Payable 8,o00 A 2,000 B Inventorv 1o,000 C INCREASE to Cost of Sales Resulting DECREASE in taxes DECREASE in prior years Retained Earnin C B A You don't change PY Income Statement (only Retained Earnings). Increase to COS means decrease to Inventory (C) Again no change to PY Income Statement. Lower taxes means decrease to Income Taxes Payable. Net Change to PY Income Statement goes to Retained Earnings