Change in Accounting Principle, Inventory. Welsh, Inc. began operations January 1, 2015. During 2017, management changed its method of accounting for inventories from the average cost method to the first-in, first-out (FIFO) method. This change is effective as of the beginning of 2017. If cost of goods sold had been determined under each of these two methods for all years of operation, the results would have been:

The company€™s income statements as reported under average cost before implementing the accounting change for 2017, 2016, and 2015, respectively, are presented below. The income tax rate for Welsh is 40%. Welsh will continue to use average cost for income tax reporting.

Required
a. Prepare the comparative income statements for Welsh after the change to FIFO.
b. Determine the after-tax cumulative effect in the retained earnings balance for the first balance sheet presented (i. e., at December 31, 2016). Welsh presents comparative balance sheets.

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Cost of Goods Sold Average cost FIFO 2016 $142,500 $120,000 $129,000 $90,000 72,000 78,000 2017 2015 Welsh, Inc. Comparative Income Statements For the Years Ended December 31 2017 2016 2015 Sales Cost of Goods Sold Operating Expenses Income before Tax Tax Expense (40%) $525,000 $450,000 (142,50 120,000 149.5001 $315,000 $280,500 .00 [112.2001 $420,000 (129,000) 28,500) $262,500 (105,000, $157500 (67500 Net Income after Tax (126 189,0006