Schmidt Company began operations on January 1, 2018, and used the LIFO inventory method for both financial reporting and income taxes. However, at the beginning of 2020, Schmidt decided to switch to the average cost inventory method for financial and income tax reporting. It had previously reported the following financial statement information for 2019: SCHMIDT COMPANY Income Statement For the Year Ended December 31, 2019 1 Revenues $128,000.00 2 Cost of goods sold (78,000.00) 3 Gross profit $50,000.00 4 Operating expenses (25,000.00) 5 Income before income taxes $25,000.00 6 Income tax expense (5,250.00) 7 Net income $19,750.00 8 Earnings per share $1.98 SCHMIDT COMPANY Retained Earnings Statements For Year Ended December 31, 2019 1 Beginning retained earnings $27,000.00 2 Add: Net income 19,750.00 3 $46,750.00 4 Less: Dividends (6,000.00) 5 Ending retained earnings $40,750.00 SCHMIDT COMPANY Balance Sheet December 31, 2019 1 Assets Liabilities and Shareholders Equity 2 Cash $8,000.00 Accounts payable $4,000.00 3 Inventory 42,000.00 Income taxes payable 5,250.00 4 Other assets 60,000.00 Common stock, no par 60,000.00 5 Retained earnings 40,750.00 6 $110,000.00 $110,000.00 An analysis of the accounting records discloses the following cost of goods sold under the LIFO and average cost inventory methods: LIFO Cost of Goods Sold Average Cost of Goods Sold 2018 $62,000 $56,000 2019 78,000 69,000 2020 90,000 80,000 There are no indirect effects of the change in inventory method. Revenues for 2020 total $130,000; operating expenses for 2020 total $30,000. Schmidt is subject to a 21% income tax rate in all years; it pays all income taxes payable in the next quarter. Assume that any deferred tax liability was paid in the subsequent year. Schmidt had 10,000 shares of common stock outstanding during all years; it paid dividends of $1 per share in 2020. At the end of 2020, Schmidt had cash of $15,600, inventory of $34,000, other assets of $76,000, income taxes payable of $4,200, and accounts payable of $3,000. It desires to show financial statements for the current year and previous year in its 2020 annual report. Required: 1. Prepare the journal entry to reflect the change in method at the beginning of 2020. Show supporting calculations. 2. Prepare the 2020 financial statements. Notes to the financial statements are not necessary. Show supporting calculations.