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Problem
Perera Company has used the average cost method for inventory valuation since it began operations in 2012, but elected to change to the FIFO method in 2015. Year-end inventory valuations under each method are shown below:
Year
Average Cost
FIFO
2012
$42,000
$49,000
2013
53,000
64,000
2014
58,000
68,000
2015
65,000
72,000
Your boss asks you how Perera should reflect this change in accounting principle in its financial statements for the year ended December 31, 2015 (ignore income taxes). Be complete.
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