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Below is the net income of Anita Ferreri Instrument Co., a private corporation, computed under the three inventory methods using a periodic system. FIFO Average-Cost LIFO 2015 \(26,000 \)24,000 $20,000 2016 30,000 25,000 21,000 2017 28,000 27,000 24,000 2018 34,000 30,000 26,000

Instructions (Ignore tax considerations.) (a) Assume that in 2018 Ferreri decided to change from the FIFO method to the average-cost method of pricing inventories. Prepare the journal entry necessary for the change that took place during 2018, and show net income reported for 2015, 2016, 2017, and 2018.

(b) Assume that in 2018 Ferreri, which had been using the LIFO method since incorporation in 2015, changed to the FIFO method of pricing inventories. Prepare the journal entry necessary to record the change in 2018 and show net income reported for 2015, 2016, 2017, and 2018

Step by step solution

01

Journal entry for Part A

Year	Calculations	Amount ($)
2015	26,000-24,000	2,000
2016	30,000-25,000	5,000
2017	28,000-27,000	1,000
		8,000

Date	Particulars	Debit ($)	Credit ($)
	Retained Earnings	8,000
	Inventory		8,000
	(To record the effect due to change in inventory method)

	2018	2017	2016	2015
Net Income	30,000	27,000	25,000	24,000

02

Journal entry for Part B

Year	Calculations	Amount ($)
2015	26,000-20,000	6,000
2016	30,000-21,000	9,000
2017	28,000-24,000	4,000
		19,000

Date	Particulars	Debit ($)	Credit ($)
	Retained Earnings	19,000
	Inventory		19,000
	(To record the effect due to change in inventory method)

	2018	2017	2016	2015
Net Income	34,000	28,000	30,000	26,000

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