Problem 7 Ferguson Co. decides at the beginning of 2019 to adopt the FIFO method of inventory valuation. Ferguson had used the average-cost method for financial reporting since its inception on January 1, 2017, and had maintained records adequate to apply the FIFO method retrospectively. Ferguson concluded that FIFO is the preferable inventory method because it reflects the current cost of inventory on the statement of financial position. The following table presents the effects of the change in accounting policy on inventory and cost of goods sold. Inventory Determined by Cost of Goods Sold Determined by Date Average-Cost Method FIFO Method Average-Cost Method FIFO Method January 1, 2017 P P P December 31, 2017 100 80 800 820 December 31, 2018 200 240 1,000 940 December 31, 2019 320 390 1,130 1,100 The balance of retained earnings on December 31, 2017, 2018, and 2019, is P2,200, P4,200; and P6,070, respectively. For each year presented, sales are P4,000 and operating expenses are P1,000. Ferguson provides two years of financial statements. Earnings per share information is not required Required: a. Prepare income statements under average-cost and FIFO for 2017, 2018, and 2019. b. Prepare income statements reflecting the retrospective application of the accounting change from the average-cost method to the FIFO method for 2019 and 2018. c. Prepare the note to the financial statements describing the change in method of inventory valuation. In the note, indicate the income statement line items for 2019 and 2018 that were affected by the change in accounting policy. d. Prepare comparative retained earnings statements for 2018 and 2019 under FIFO