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The Pyramid Company has used the LIFO method of accounting for inventory during its first two years of operation, 2019 and 2020. At the beginning of 2021, Pyramid decided to change to the average cost method for both tax and financial reporting purposes. The following table presents information concerning the change for 2019-2021. The income tax rate for all years is 25%. 2019 2020 Total 2021 Income before Income Tax Using Average Using LIFO Cost Method Method $ 88,200 $58,800 43,500 34,800 $131,700 $ 50,400 $45,700 Difference $29,400 8,700 $38,100 $ 4,700 Income Tax Effect $7,350 2,175 $9,525 $1,175 Difference after Tax $22,050 6,525 $28,575 $ 3,525 $93,600 Pyramid issued 46,000 $1 par, common shares for $215,000 when the business began, and there have been no changes in paid-in capital since then. Dividends were not paid the first year, but $11,000 cash dividends were paid in both 2020 and 2021. Required: 1. Prepare the journal entry at January 1, 2021, to record the change in accounting principle. 2. Prepare the 2021-2020 comparative income statements beginning with income before income taxes. 3. Prepare the 2021-2020 comparative statements of shareholders' equity [Hint: The 2019 statements reported retained earnings of $44,100. This is $58,800 - ($58,800 ~ 25%)]. Required 1 Required 2 Required 3 Prepare the journal entry at January 1, 2021, to record the change in accounting principle. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the change in accounting principle. Note: Enter debits before credits. General Journal Debit Credit Date January 01, 2021 Required 1 Required 2 Required 3 Prepare the 2021-2020 comparative income statements beginning with income before income taxes. (Round EPS answers to 2 decimal places.) COMPARATIVE INCOME STATEMENTS 2021 2020 $ 0 $ 0 Earnings per share Required 1 Required 2 Required 3 Prepare the 2021-2020 comparative statements of shareholders' equity. (Hint: The 2019 statements reported retained earnings of $44,100. This is $58,800 - ($58,800 25%).] (Deductions should be indicated by a minus sign.) PYRAMID COMPANY Statement of Shareholders' Equity For the Years Ended Dec. 31, 2021 and 2020 Common Additional Retained Paid in Stock Capital Earnings Total Shareholders' Equity Balance at Jan. 1, 2020 Net income Cash dividends Balance at Dec 31, 2020 Net income Cash dividends Balance at Dec 31, 2021 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
