The Cecil-Booker Vending Company changed its method of valuing inventory from the average cost method to the FIFO cost method at the beginning of 2009. At December 31, 2008, inventories were $120,000 (average cost basis) and were $124,000 a year earlier. Cecil-Booker's accountants determined that the inventories would have totaled $155,000 at December 31, 2008, and $160,000 at December 31, 2007, if determined on a FIFO basis. A tax rate of 40% is in effect for all years.
One hundred thousand common shares were outstanding each year. Income from continuing operations was $400,000 in 2008 and $525,000 in 2009. There were no extraordinary items either year.
Required:
1. Prepare the journal entry to record the change in principle. (All tax effects should be reflected in the deferred tax liability account.)
2. Prepare the 2009-2008 comparative income statements beginning with income from continuing operations. Include per share amounts.