Welsh, Inc. began operations January 1, 2017, during 2019. 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 January 1, 2019.

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 2019, 2018, and 2017 follow. 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, 2018). Welsh presents comparative balance sheets.

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2018 2017 Cost of Goods Sold Average cost 2019 $142,500 $120,000 $129,000 AFO 90,000 72,000 78 000 Welsh, Inc. Comparative Income Statements For the Years Ended December 31 2019 2018 2017 Sales $ 525,000 $450,000 $ 420,000 Cost of Goods Sald (142 500) (120,000) (129 000) Operating Expenses (67,500) (49,500) (28,500) Income before Tax $315.000 $280,500 $262,500 (126 000) $ 189 000 (105 000) $ 157500 Tax Expense (40%) (112,200) Net Income af er Tax $168 300