prepare the journal entry at the beginning of 2008 to reflect the change 610584

Change in Inventory Cost Flow Assumption – At the beginning of 2008 the Brett Company decided to change from the FIFO to the average cost inventory cost flow assumption for financial reporting purposes. The following data are available in regard to its pretax operating income and cost of goods sold:

The income tax rate is 30%, and the company received permission from the IRS to also make the change for income tax purposes. The company has a simple capital structure, with 100,000 shares of common stock outstanding. The company computed its reported income before income taxes in 2008 using the newly adopted inventory cost flow method. Brett’s 2007 and 2008 revenues were $1,500,000 and $1,750,000, respectively. Its retained earnings balances at the beginning of 2007 and 2008 (unadjusted) were $1,120,000 and $1,540,000, respectively. The company paid no dividends in any year.

Required

1. Prepare the journal entry at the beginning of 2008 to reflect the change.

2. At the end of 2008 prepare comparative income statements for 2008 and 2007. Notes to the financial statements are not necessary.

3. At the end of 2008 prepare comparative retained earnings statements for 2008 and 2007.