The Cecil-Booker Vending Company changed its method of valuing inventory from the average cost method to the FIFO cost method at the beginning of 2009. At December 31, 2008, inventories were $120,000 (average cost basis) and were $124,000 a year earlier. Cecil-Booker’s accountants determined that the inventories would have totaled $155,000 at

December 31, 2008, and $160,000 at December 31, 2007, if determined on a FIFO basis. A tax rate of 40% is in effect for all year.

One hundred thousand common shares were outstanding each year. Income from continuing operations was $400,000 in 2008 and $525,000 in 2009. There were no extraordinary items either year.

Required:

1. Prepared the journal entry to record the change in principle. (All tax effects should be reflected in the deferred tax liability account.)

2. Prepare the 2009–2008 comparative income statements beginning with income from continuing operations. Include per share amounts.

Answer rating: 100% (QA)

Requirement 1 To record the change Inventory 155000 120000 35000 Defe... View the full answer