Yuan Instrument Corp., a small company that follows ASPE, began operations on January 1, 2011, and uses a periodic inventory system. The following net income amounts were calculated for Yuan under three different inventory cost formulas:

Instructions
Answer the following, ignoring tax considerations.
(a) Assume that in 2014, Yuan changed from the weighted average cost formula to the FIFO cost formula and it was agreed that the FIFO method provided more relevant financial statement information. Prepare the necessary journal entry for the change that took place during 2014, and provide all the information that is needed for reporting on a comparative basis.
(b) Assume that in 2014, Yuan, which had been using the LIFO method since incorporation in 2011, changed to the FIFO cost formula in order to comply with CICA Handbook, Part II, Section 3031, since LIFO is not a permitted inventory cost flow assumption under GAAP. The company applies the new policy retrospectively. Prepare the necessary journal entry for the change, and provide all the information that is needed for reporting on a comparative basis.

Transcribed Image Text:

FIFOWeighted Average Cost 2011 2012 2013 2014 LIFO $20,000 21,000 24,000 26,000 $26,000 30,000 28,000 34,000 $24,000 C) 27,000 30,000