Jones Corporation switched from the LIFO method of costing inventories to the FIFO method at the beginning of 2017. The LIFO inventory at the end of 2016 would have been $80,000 higher using FIFO. Reported retained earnings at the end of 2016 were $1,750,000. Joness tax rate is 30%.

Tax law requires a company using LIFO for tax purposes to use it for financial reporting as well. So, when Jones changes from LIFO to FIFO, it will have to do the same for tax purposes. Further, Jones must recognize taxable income equal to the amount by which it increases the inventory valuation when it makes the change. As a result, Jones will pay tax on an additional $80,000 of taxable income in 2017.

Required:

1. Calculate the balance in retained earnings at the time of the change (beginning of 2017) as it would have been reported had FIFO been previously used.

2. Prepare the journal entry to record the change in accounting principle at the beginning of 2017.