The Coclin Company has used the LIFO method of accounting for inventory during its first two years of operation, 2022 and 2023. At the beginning of 2024, Coclin decided to change to the average cost method for both tax and financial reporting purposes. The following table presents information concerning the change for 2022–2024. The income tax rate for all years is 25%.

Coclin issued 50,000 $1 par, common shares for $230,000 when the business began, and there have been no changes in paid-in capital since then. Dividends were not paid the first year, but $10,000 cash dividends were paid in both 2023 and 2024.

Required:
1. Prepare the journal entry at January 1, 2024, to record the change in accounting principle.
2. Prepare the 2024–2023 comparative income statements beginning with income before income taxes.
3. Prepare the 2024–2023 comparative statements of shareholders’ equity. [Hint: The 2022 statements reported retained earnings of $45,000. This is $60,000 − ($60,000 × 25%).]

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2022 2023 Total 2024 Income before Income Tax Using Average Cost Method Using LIFO Method $ 90,000 45,000 $135,000 $ 51,000 $60,000 36,000 $96,000 $46,000 Difference $30,000 9,000 $39,000 $ 5,000 Income Tax Effect $7,500 2,250 $9,750 $1,250 Difference after Tax $22,500 6,750 $29,250 $3,750