Garner Company began operations on January 1, 2010, and uses the average cost method of pricing inventory.

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Question:

Garner Company began operations on January 1, 2010, and uses the average cost method of pricing inventory. Management

is contemplating a change in inventory methods for 2013. The following information is available for the years 2010–2012.

Net Income Computed Using

Average Cost Method FIFO Method LIFO Method

2010 $15,000 $20,000 $12,000

2011 18,000 24,000 14,000

2012 20,000 27,000 17,000

On January 1, 2012, Garner issued 10-year, $200,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 30 shares

of Garner common stock. The company has had 10,000 common shares outstanding throughout its life.

Using the spreadsheet Journal Entries, prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2013.

Assume Garner Company used the LIFO method instead of the average cost method during the years 2010–2012. In 2013, Garner changed

to the FIFO method. prepare the journal entry necessary to record the change in accounting principle.

Assuming Garner had the accounting change described in (2), Garner’s income in 2013 was $30,000. Compute basic and diluted earnings per share for Garner Company for 2013. Show how income and EPS will be reported for 2013 and 2012.