Question

Vaughn 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		$15,900		$19,170		$12,110
2016		17,880		20,980		13,990
2017		20,180		25,060		17,120

(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 Vaughn Company used the LIFO method instead of the average cost method during the years 2015–2017. In 2018, Vaughn 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

a.

	Average cost	FIFO
2015	$15,900	$19,170
2016	17,880	20,980
2017	20,180	25,060
Total	$53,960	$65,210

Account titles and explanation	Debit	Credit
Inventory ($65,210-53,960)	$11,250
Retained earnings		$11,250

b.

	Net income
2015	$19,170
2016	20,980
2017	25,060

c.

	LIFO	FIFO
2015	$12,110	$19,170
2016	13,990	20,980
2017	17,120	25,060
Total	$43,220	$65,210

Account titles and explanation	Debit	Credit
Inventory ($65,210-43,220)	$21,990
Retained earnings		$21,990