Question

Holder-Webb Company began operations on January 1, 2015, and uses the average-cost method of pricing inventory. Management is contemplating a change in inventory methods for 2018. The following information is available for the years 2015–2017. Net Income Computed Using Average-Cost Method FIFO Method LIFO Method 2015 \(15,000 \)19,000 $12,000 2016 18,000 23,000 14,000 2017 20,000 25,000 17,000 Instructions (Ignore all tax effects.) (a) Prepare the journal entry necessary to record a change from the average-cost method to the FIFO method in 2018. (b) Determine net income to be reported for 2015, 2016, and 2017, after giving effect to the change in accounting principle. (c) Assume Holder-Webb Company used the LIFO method instead of the average-cost method during the years 2015– 2017. In 2018, Holder-Webb changed to the FIFO method. Prepare the journal entry necessary to record the change in principle.

Short answer

The net income under FIFO for 2015 will be $19,000, 2016 will be $23,000, and 2017 will be $25,000

Step-by-step solution

Journal Entry

Date	Particulars	Debit ($)	Credit ($)
	Inventory	14,000
	Retained Earnings		14,000
	(Being Change in the method is recorded)
	(19,000+23,000+25,000-15,000-18,000-20,000)

Net Income to be reported

Year	Net Income
2015	19,000
2016	23,000
2017	25,000

Journal Entry

Date	Particulars	Debit ($)	Credit ($)
	Inventory	14,000
	Retained Earnings		14,000
	(Being Change in the method is recorded)
	(19,000+23,000+25,000-12,000-14,000-17,000)