Fact Pattern:

Loire Co$.,$ a calendar year$-$end firm, has used the FIFO method of inventory measurement since it began operations in Year $3.$ Loire changed to the weighted$-$average method for determining inventory costs at the beginning of Year $6.$ Justification for this change was that it better reflected inventory flow. The following schedule shows year$-$end inventory balances under the FIFO and weighted$-$average methods:

Year

FIFO

Weighted$-$Average

$3$

$$90,000$

$$108,000$

$4$

$156,000$

$142,000$

$5$

$166,000$

$150,000$

In its Year $6$ financial statements, Loire included comparative statements for both Year $5$ and Year $4.$

What adjustment, before taxes, should Loire make retrospectively to the balance reported for retained earnings at the beginning of Year $4?$

$$18,000$ increase.

$$18,000$ decrease.

$$0$

$$4,000$ increase.

In Year$2$ income from continuing operations.

As a correction of an error requiring Year$1$ financial statements to be restated.

As a cumulative amount, net of tax, below Year$2$ income from continuing operations.

As an accounting change retrospectively applied to the Year$1$ financial statements.

$$292,000$

$$352,000$

$$320,000$

$$308,000$