The Pyramid Company has used the LIFO method of accounting for inventory during its first two years of operation, 2016 and 2017. At the beginning of 2018, 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 20162018. The income tax rate for all years is 40%.

	Income before Income Tax
	Average Cost Method				LIFO Method				Difference				Income Tax Effect				Difference after Tax
2016		$	91,200			$	60,800			$	30,400			$	12,160			$	18,240
2017			46,000				36,800				9,200				3,680				5,520
Total		$	137,200			$	97,600			$	39,600			$	15,840			$	23,760
2018		$	51,400			$	46,200			$	5,200			$	2,080			$	3,120

Pyramid issued 53,000 $1 par, common shares for $240,000 when the business began, and there have been no changes in paid-in capital since then. Dividends were not paid the first year, but $12,000 cash dividends were paid in both 2017 and 2018. Required: 1. Prepare the journal entry to record the change in accounting principle. 2. Prepare the 20182017 comparative income statements beginning with income before income taxes. 3. Prepare the 20182017 comparative statements of shareholders equity. (Hint: The 2016 statements reported retained earnings of $36,480. This is $60,800 [$60,800 40%]).