Reference no: EM132651074

Koopman Company began operations on January 1, 2015, and uses the FIFO inventory method for financial reporting and the average cost inventory method for income taxes. At the beginning of 2017, Koopman decided to switch to the average cost inventory method for financial reporting.

An analysis of the accounting records discloses the following cost of goods sold under the FIFO and average cost inventory methods:

               FIFO Cost of Goods Sold                   Average Cost of Goods Sold

2015        $50,000                                       $57,000

2016       60,000                                       69,000

2017          70,000                                      80,000

1. There are no indirect effects of the change in inventory method. Revenues for 2017 total $130,000; operating expenses for 2017 total $30,000. Koopman is subject to a 30% income tax rate in all years; it pays the income taxes payable of a current year in the first quarter of the next year. Koopman had 10,000 shares of common stock outstanding during all years; it paid dividends of $1 per share in 2017. At the end of 2017, Koopman had cash of $10,000, inventory of $24,000, other assets of $70,800, accounts payable of $4,500, and income taxes payable of $6,000. It desires to show financial statements for the current year and previous year in its 2017 annual report.

Required:

Question 1: Prepare the journal entry to reflect the change in methods at the beginning of 2017. Show supporting calculations.

Question 2: Prepare the 2017 financial statements. Notes to the financial statements are not necessary. Show supporting calculations.