Holder-Webb Company began operations on January 1, 2018, and uses the average-cost method of pricing inventory. Management is contemplating a change in inventory methods for 2021. The following information is available for the years 2018–2020.   Net Income Computed Using   Average-Cost Method FIFO Method LIFO Method 2018 $15,000 $19,000 $12,000 2019   18,000   23,000   14,000 2020   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 2021. b.    Determine net income to be reported for 2018, 2019, and 2020, 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 2018–2020. In 2021, Holder-Webb changed to the FIFO method. Prepare the journal entry necessary to record the change in principle.

Question

Holder-Webb Company began operations on January 1, 2018, and uses the average-cost method of pricing inventory. Management is contemplating a change in inventory methods for 2021. The following information is available for the years 2018–2020.

 
Net Income Computed Using
 
Average-Cost Method
FIFO Method
LIFO Method
2018
$15,000
$19,000
$12,000
2019
  18,000
  23,000
  14,000
2020
  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 2021.

b.    Determine net income to be reported for 2018, 2019, and 2020, 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 2018–2020. In 2021, Holder-Webb changed to the FIFO method. Prepare the journal entry necessary to record the change in principle.

 

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