Reference no: EM132751729

Fox has used the FIFO method of inventory valuation since it began operations in 20x6. Fox decided to change to the weighted-average method for determining inventory costs at the beginning of 20x9.

The following schedule shows year-end inventory balances under the FIFO and weighted-average methods:

Year        FIFO             Weighted-average
20x6     $45,000           $54,000
20x7     78,000             71,000
20x8      83,000             78,000

Problem 1: What amount, before income taxes, should be reported in the 20x9 retained earnings statement as the cumulative effect of the change in accounting principle?

Option 1: $2,000 decrease

Option 2: $3,000 decrease

Option 3: $5,000 decrease

Option 4: $0