Change in Accounting Principle, Inventory. Massi Pharmacies, Inc. started operations on January 1, 2011. The company initially used the average- cost method to value its inventory for both book and tax purposes. Effective January 1, 2015, Massi elected to change its inventory valuation method to the FIFO basis for financial reporting purposes. Massi still uses the average cost method on the company€™s tax returns. Massi is subject to a 35% tax rate.
The following information is available for net income after tax for both the FIFO and the average- cost methods.

Required
a. Prepare the journal entry required to record the accounting change on January 1, 2015.
b. Prepare the partial comparative income statements for the three years ending December 31, 2015.
c. Prepare the footnote to disclose the change from the average cost to the FIFO basis. Designate the note as €œChange in Method of Accounting for Inventory Valuation.€

Transcribed Image Text:

Net Income Average Cost YWear Ended December 31, 2011 235,000 $3,000 December 31, 2012 300,000 $376,000 December 31, 2013 $310,000 $400,500 December 31, 2014 $425,500 $535,000 December 31, 2015 $500,000 585,000 AFO