Question

Sage 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		$15,860		$18,810		$12,090
2016		18,010		20,800		14,140
2017		19,970		24,990		16,870

(a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

(b) Determine net income to be reported for 2015, 2016, and 2017, after giving effect to the change in accounting principle.

		Net Income
2015		$
2016		$
2017		$

(c) Assume Sage Company used the LIFO method instead of the average cost method during the years 2015–2017. In 2018, Sage changed to the FIFO method. Prepare the journal entry necessary to record the change in principle. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

Answer 1

Sage Company
Net Income computing
Year	Average cost method	FIFO Method	LIFO Method
2015	$                                     15,860.00	$         18,810.00	$        12,090.00
2016	$                                     18,010.00	$         20,800.00	$        14,140.00
2017	$                                     19,970.00	$         24,990.00	$        16,870.00
Journal Entry
a)	Account Title & Explanation	Debit	Credit
*	Inventory	$         10,760.00
	To Retained Earnings		$        10,760.00
b)	Net Income(FIFO Method)
	Year	Net Income
	2015	$         18,810.00
	2016	$         20,800.00
	2017	$         24,990.00
	Journal Entry
c )	Account Title & Explanation	Debit	Credit
	Inventory	$         21,500.00
**	To Retained Earnings		$        21,500.00
*	($18810+$20800+$24990-$15860-$18010-$19970)
**	($18810+$20800+$24990-$12090-$14140-$16870)