Problem 20-2 (Algo) Change in principle; change in method of accounting for long-term construction [LO20-2] The Pyramid Company has used the LIFO method of accounting for inventory during its first two years of operation, 2019 and 2020. At the beginning of 2021, Pyramid decided to change to the average cost method for both tax and financial reporting purposes. The following table presents information concerning the change for 2019-2021. The Income tax rate for all years is 25%. 2019 2820 Total 2021 Income before Income Tax Using Average Using LIFO Cost Method $ 85,888 41,500 $127,300 $49,600 Method $57,200 33,200 $98,408 $45,300 Difference $28,600 8,300 $36,900 $ 4,300 Balance at Jan 1, 2020 Net income Cash dividends Balance at Dec. 31, 2020 Net income Cash dividends Balance at Dec. 31, 2021 Pyramid Issued 42,000 $1 par, common shares for $195,000 when the business began, and there have been no changes in paid-In capital since then. Dividends were not paid the first year, but $12.000 cash dividends were paid in both 2020 and 2021. Income Tax Effect $7,150 2,075 $9,225 $1,075 Required: 1. Prepare the journal entry at January 1, 2021, to record the change in accounting principle. 2. Prepare the 2021-2020 comparative income statements beginning with income before income taxes. 3. Prepare the 2021-2020 comparative statements of shareholders' equity. (Hint: The 2019 statements reported retained earnings of $42,900. This is $57200-($57,200 x 25%)]. Complete this question by entering your answers in the tabs below. S Answer is complete but not entirely correct. Required 1 Required 2 Required 3 Prepare the 2021-2020 comparative statements of shareholders' equity. [Hint: The 2019 statements reported retained earnings of $42,900. This is $57,200- ($57,200 x 25 % ) . ] ( Deductions should be indicated by a minus sign.) PYRAMID COMPANY Statement of Shareholders' Equity For the Years Ended Dec. 31, 2021 and 2020 Common Stock Difference after Tax $21,450 6,225 Additional Paid-in Capital 42,000 $ 153,000 $ 42,000 $27,675 $ 3,225 $ 153,000 $ 42,000 $ 153,000 Retained Earnings $ 64,350 31,125 (12,000) S Total Shareholders' Equity $ 83,475 $ 37,200 (12,000) $ 108,675 $ 217,350 31,125 (12,000) 236,475 37,200 (12,000) 261,675