Chapter 20, Problem 20.9E

Change in inventory methods; FIFO method to the LIFO method

• LO20–3

Wolfgang Kitchens has always used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2018, Wolfgang decided to change to the LIFO method. Net income in 2018 was correctly stated as $90 million. If the company had used LIFO in 2017, its cost of goods sold would have been higher by $7 million that year. Company accountants are able to determine that the cumulative net income for all years prior to 2017 would have been lower by $23 million if LIFO had been used all along, but have insufficient information to determine specific effects of using LIFO in 2016. Last year, Wolfgang reported the following net income amounts in its comparative income statements:

($ in millions)	2017	2016	2015
Net income	$84	$82	$80

Required:

1. 1. Prepare the journal entry at the beginning of 2018 to record the change in accounting principle. (Ignore income taxes.)
2. 2. Briefly describe other steps Wolfgang will take to report the change.
3. 3. What amounts will Wolfgang report for net income in its 2018–2016 comparative income statements?