In 2020, Frost Company, which began operations in 2018 , decided to change from LIFO to FIFO because management believed that FIFO better represented the flow of their inventory. Management prepared the following analysis showing the effect of this change: Frost reported net income of $2,487,000,$2,332,000, and $2,057,000 in 2018,2019 , and 2020 , respectively. The tax rate is 40%. Required: 1. Prepare the journal entry necessary to record the change. 2. What amount of net income would Frost report in 2018, 2019, and 2020 ? SCHMIDT COMPANY Retained Earnings Statements For Year Ended December 31, 2019 \begin{tabular}{|r|l|r|} \hline 1 & Beginning retained earnings & $27,000.00 \\ \hline 2 & Add: Net income & 19,750.00 \\ \hline 3 & & $46,750.00 \\ \hline 4 & Less: Dividends & (6,000.00) \\ \hline 5 & Ending retained earnings & $40,750.00 \\ \hline \end{tabular} SCHMIDT COMPANY Balance Sheet December 31, 2019 1 Assets Liabilities and Shareholders' Equity \begin{tabular}{|l} 2 \\ \hline \\ \hline \end{tabular} Cash Inventory 4 Other assets 5 6 $110,000.00 \begin{tabular}{r|} \hline 40,750.00 \\ \hline$110,000.00 \\ \hline \hline \end{tabular} An analysis of the accounting records discloses the following cost of goods sold under the LIFO and average cost inventory methods: There are no indirect effects of the change in inventory method. Revenues for 2020 total $130,000; operating expenses for 2020 total $30,000. Schmidt is subject to a 21% income tax rate in all years; it pays all income taxes payable in the next quarter. Assume that any deferred tax liability was paid in the subsequent year. Schmidt had 10,000 shares of common stock outstanding during all years; it paid dividends of $1 per share in 2020 . At the end of 2020 , Schmidt had cash of $15,600, inventory of $34,000, other assets of $76,000, income taxes payable of $4,200, and accounts payable of $3,000. It desires to show financial statements for the current year and previous year in its 2020 annual report. Required: 1. Prepare the journal entry to reflect the change in method at the beginning of 2020. Show supporting calculations. 2. Prepare the 2020 financial statements. Notes to the financial statements are not necessary. Show supporting calculations. Amount Descriptions Adjustment for the cumulative effect of accounting method change Adjusted beginning retained earnings Beginning unadjusted retained earnings Dividends Ending retained earnings Gross profit Income before income taxes Net income Operating expenses Other assets Revenues Total assets Total liabilities and shareholders' equity 2a. Prepare the comparative income statements. Income Statements Instructions 2b. Prepare the comparative retained earnings statements. RetainedEarningsInstructions 2c. Prepare the comparative balance sheets