ABC Corp. used the FIFO method for 2017 (its first year of operations), then switch to the average method in 2018. Beginning and ending inventory was $200,000 and $250,000, respectively, for FIFO; and $260,000 and $310,000, respectively for average method in 2017. Assume a tax rate of 35% for both years. Outstanding shares were 150,000 each year. Income from continuing operations was $600,000 in 2017 and $700,000 in 2018. There were no discontinued operations either year.

Make the journal entry to record the change in accounting principle. Also prepare summarized income statements, with EPS figures for 2018 and 2017 comparative financial statements. Finally, suppose the company started operations in 2016 using the average method. If 2016 statements are not presented with 2017 and 2018 statements, does that mean that there will be no 2016 inventory effect on the 2017-2018 statements? Explain and discuss