Second Thought Products (STP) began operation on January 1,2015 and adopted FIFO method of inventory evaluation at that time. Management elected to change its inventory method to the average-cost method effect January 1,2018. The new method more fairly presents the company's financial position and results of operation. The following information is available for the years ended December 31,2015 though December 31,2018. STP is subject to a 40% income tax rate. The company still uses the FIFO method for income tax reporting.

Cost of goods sold under

Year Average-cost method FIFO method

2015 $ 176,400 $ 201,600

2016 $ 117,600 $ 134,400

2017 $ 252,000 $ 277,200

2018 $ 285,600 $ 260,400

Required

a. Compute the cumulative effect, net of tax, for the 3 year-period needed to record a change from the FIFO method to the average- cost method.

b. Prepare the journal entry to record the change in accounting for inventory evaluation.

c. Indicate where STC should report the net of tax cumulative effect, assuming that the first balance sheet presented is for the year ended December 31,2018.

d. Indicate the cost of goods sold reported in the income statement of 2015, 2016,2017, and 2018.

e. Assume that this change in principle is considered to be impractical. Indicate the cost of goods on the income statement for 2015, 2016, 2017, and 2018.