Taveras Co. decides at the beginning of 2020 to adopt the FIFO method of inventory valuation. Taveras had used the LIFO method for financial reporting since its inception on January 1, 2018, and had maintained records adequate to apply the FIFO method retrospectively. Taveras concluded that FIFO is the preferable inventory method because it reflects the current cost of inventory on the balance sheet. The following table presents the effects of the change in accounting principles on inventory and cost of goods sold.

Other information:

1. For each year presented, sales are $3,000 and operating expenses are $1,000.

2. Taveras provides two years of financial statements. Earnings per share information is not required.

Instructions

a. Prepare income statements under LIFO and FIFO for 2018, 2019, and 2020.

b. Prepare income statements reflecting the retrospective application of the accounting change from the LIFO method to the FIFO method for 2020 and 2019.

c. Prepare the note to the financial statements describing the change in method of inventory valuation. In the note, indicate the income statement line items for 2020 and 2019 that were affected by the change in accounting principle.

d. Prepare comparative retained earnings statements for 2019 and 2020 under FIFO. Retained earnings reported under LIFO are as follows:

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Retained Earnings BalanceDecember 31, 2018.................................................$1,200December 31, 2019...................................................2,200December 31, 2020...................................................3,070

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Inventory Determined by LIFO Method Cost of Goods Sold Determined by LIFO Method FIFO Method FIFO Method Date January 1, 2018 December 31, 2018 December 31, 2019 December 31, 2020 80 820 100 800 200 320 240 390 1,000 940 1,100 1,130