Koopman Company began operations on January 1, 2015, and uses the FIFO inventory method for financial reporting and the average cost inventory method for income taxes. At the beginning of 2017, Koopman decided to switch to the average cost inventory method for financial reporting. It had previously reported the following financial statement information for 2016:

KOOPMAN COMPANY

Income Statement

For the Year Ended December 31, 2016

1 Revenues $100,000.00

2 Cost of goods sold (60,000.00)

3 Gross profit $40,000.00

4 Operating expenses (25,000.00)

5 Income before income taxes $15,000.00

6 Income tax expense (4,500.00)

7 Net income $10,500.00

8 Earnings per share $1.05

KOOPMAN COMPANY

Retained Earnings Statements

For Year Ended December 31, 2016

1 Beginning retained earnings $15,000.00

2 Add: Net income 10,500.00

3 $25,500.00

4 Less: Dividends (6,000.00)

5 Ending retained earnings $19,500.00

KOOPMAN COMPANY

Balance Sheet

December 31, 2016

1 Assets Liabilities and Shareholders' Equity

2 Cash $9,000.00 Accounts payable $3,000.00

3 Inventory 38,000.00 Income taxes payable 1,800.00

4 Other assets 64,100.00 Deferred tax liability 4,800.00

5 Common stock, no par 82,000.00

6 Retained earnings 19,500.00

7 $111,100.00 $111,100.00

An analysis of the accounting records discloses the following cost of goods sold under the FIFO and average cost inventory methods:

FIFO Cost of Goods Sold Average Cost of Goods Sold

2015 $50,000 $57,000

2016 60,000 69,000

2017 70,000 80,000

There are no indirect effects of the change in inventory method. Revenues for 2017 total $130,000; operating expenses for 2017 total $30,000. Koopman is subject to a 30% income tax rate in all years; it pays the income taxes payable of a current year in the first quarter of the next year. Koopman had 10,000 shares of common stock outstanding during all years; it paid dividends of $1 per share in 2017. At the end of 2017, Koopman had cash of $10,000, inventory of $24,000, other assets of $70,800, accounts payable of $4,500, and income taxes payable of $6,000. It desires to show financial statements for the current year and previous year in its 2017 annual report.

Required:

1.

Prepare the journal entry to reflect the change in methods at the beginning of 2017. Show supporting calculations.

2.

Prepare the 2017 financial statements. Notes to the financial statements are not necessary. Show supporting calculations.

CHART OF ACCOUNTS

Koopman Company

General Ledger

ASSETS

111

Cash

121

Accounts Receivable

141

Inventory

152

Prepaid Insurance

154

Deferred Tax Asset

181

Equipment

189

Accumulated Depreciation

LIABILITIES

211

Accounts Payable

231

Salaries Payable

250

Unearned Revenue

260

Deferred Tax Liability

261

Income Taxes Payable

EQUITY

311

Common Stock

331

Retained Earnings

REVENUE

411

Sales Revenue

EXPENSES

500

Cost of Goods Sold

511

Insurance Expense

512

Utilities Expense

521

Salaries Expense

532

Bad Debt Expense

540

Interest Expense

541

Depreciation Expense

559

Miscellaneous Expenses

910

Income Tax Expense

Amount Descriptions

Adjustment for the cumulative effect of accounting method change

Adjusted beginning retained earnings

Beginning unadjusted retained earnings

Dividends

Earnings per share

Ending retained earnings

Gross profit

Income before income taxes

Net income

Operating expenses

Other assets

Revenues

Total assets

Total liabilities and shareholders' equity