Fantasy Fashions had used the LIFO method of costing inventories, but at the beginning of 2018 decided tochange to the FIFO method. The inventory as reported at the end of 2017 using LIFO would have been $20 million higher using FIFO.Retained earnings reported at the end of 2016 and 2017 was $240 million and $260 million, respectively(reflecting the LIFO method). Those amounts reflecting the FIFO method would have been $250 million and$272 million, respectively. 2017 net income reported at the end of 2017 was $28 million (LIFO method) butwould have been $30 million using FIFO. After changing to FIFO, 2018 net income was $36 million. Dividendsof $8 million were paid each year. The tax rate is 40%.Required:1. Prepare the journal entry at the beginning of 2018 to record the change in accounting principle.2. In the 2018–2017 comparative income statements, what will be the amounts of net income reported for 2017and 2018?3. Prepare the 2018–2017 retained earnings column of the comparative statements of shareholders’ equity
Fantasy Fashions had used the LIFO method of costing inventories, but at the beginning of 2018 decided to
change to the FIFO method. The inventory as reported at the end of 2017 using LIFO would have been $20 million higher using FIFO.
(reflecting the LIFO method). Those amounts reflecting the FIFO method would have been $250 million and
$272 million, respectively. 2017 net income reported at the end of 2017 was $28 million (LIFO method) but
would have been $30 million using FIFO. After changing to FIFO, 2018 net income was $36 million. Dividends
of $8 million were paid each year. The tax rate is 40%.
Required:
1. Prepare the
2. In the 2018–2017 comparative income statements, what will be the amounts of net income reported for 2017
and 2018?
3. Prepare the 2018–2017 retained earnings column of the comparative statements of shareholders’ equity
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