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

2012

$15,000

$19,000

$12,000

2013

18,000

23,000

14,000

2014

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.