In 2014, Frost Company, which began operations in 2012, decided to change from LIFO to FIFO because management believed that FIFO better represented the flow of their inventory. Management prepared the following analysis showing the effect of this change:

Frost reported net income of $2,500,000, $2,400,000, and $2,100,000 in 2012, 2013, and 2014, respectively.
The tax rate is 30%.
Required:
1. Prepare the journal entry necessary to record the change.
2. What amount of net income would Frost report in 2012, 2013, and 2014?
3. If Frost's employees received a bonus of 10% of income before deducting the bonus and income taxes in 2012 and 2013, what would be the effect on net income for 2012, 2013, and 2014?

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Ending Inventory Cumulative Difference LIFO FIFO 12/31/2012 $240,000 $273,000 $33,000 12/31/2013 $245,000 $301,000 $56,000 12/31/2014 $256,000 $328,000 $72,000