Reference no: EM132784911

Armstrong Ltd has used the average cost (AC) method to determine inventory values since the company wasfirst formed in 2015. In 2019, the company decided to switch to the FIFO method, to conform to industry practice.The tax rate is 30%. The following data has been assembled:

                                                                        2017             2018                      2019
Net Income, as reported, after tax         352,400          414,600          195,400
Closing inventory AC                            91,200              148,200           n/a
Closing inventory FIFO                         84,000                 136,800        202,800
Dividends                                           11,400                 15,600         22,000

• Net income for 2017 and 2018 is using the old policy (AC) and net income 2019 is using the new policy (FIFO)
• Opening retained earnings for 2018 as previously stated was 516,000.

REQUIRED:

Problem a) Prepare the entry in 2019 to correct the error.

Problem b) Prepare the comparative retained earnings section of the statement of changes in shareholders'equity for 2018 and 2019, reflecting the change.