The ABC Company has used the LIFO method of accounting for inventory during its first two years of operation, $2019$ and $2020.$ At the beginning of $2021,$ ABC decided to change to the average cost method for both tax and financial reporting purposes. The following table presents information concerning the change for $20192021.$ The income tax rate for all years is $25\%.$

Income before Income Tax

Using Average Cost Method Using LIFO Method Difference Income Tax Effect Difference after Tax

$2019$ $ $90,000$ $$60,000$ $$30,000$ $$7,500$ $$22,500$

$202045,00036,0009,0002,2506,750$

Total $$135,000$ $$96,000$ $$39,000$ $$9,750$ $$29,250$

$2021$ $ $51,000$ $$46,000$ $ $5,000$ $$1,250$ $ $3,750$

ABC issued $50,000$ $$1$ par, common shares for $$230,000$ when the business began, and there have been no changes in paid$-$in capital since then. Dividends were not paid the first year, but $$10,000$ 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 $20212020$ comparative income statements beginning with income before income taxes.

$3.$ Prepare the $20212020$ comparative statements of shareholders$$ equity. $[$Hint: The $2019$ statements reported retained earnings of $$45,000.$ This is $$60,000($$$60,000\backslash$times $25\%).]$