On January 1, 2018, Devoe Company changed from the FIFO method to the average cost method to account for inventory. The company provided the following ending inventory for each method:

	2017	2018
FIFO	350,000	700,000
AVERAGE COST	250,000	450,000

The company reported the following income statement using the FIFO method:

	2017	2018
Sales	5,000,000	6,500,000
Cost of sales	3,500,000	4,500,000
Operating Expense	750,000	1,000,000
Income before Tax	750,000	1,000,000
Income tax expense	225,000	300,000

The company accrues income tax expense on December 31 of each year and paid the tax in the following year. The income tax rate is 30%

1. What amount of profit should be reported in 2018 after the accounting change? A. 595,000 B. 805,000 C. 850,000 D. 1,150,000 SHOW SOLUTION