# Question: Refer to RE23 2 Assume the pretax cumulative effect adjustment is

Refer to RE23-2. Assume the pretax cumulative effect adjustment is \$50,000. Prepare the journal entry that Heller Company would make at the beginning of Year 2 to record the cumulative effect of the retrospective adjustment for the change from LIFO to FIFO.
In RE23-2, Heller Company began operations in Year 1 and used the LIFO method to compute its \$300,000 cost of goods sold for that year. At the beginning of Year 2, Heller changed to the FIFO method. Heller determined that its cost of goods sold under FIFO would have been \$250,000 in Year 1. For Year 2, Heller’s cost of goods sold under FIFO was \$360,000, while it would have been \$410,000 under LIFO. Heller is subject to a 30% income tax rate. Compute the cumulative effect of the retrospective adjustment on prior year’s income (net of taxes) that Heller Company would report on its retained earnings statement for Year 2.

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