Chapter 21, Problem 21.4E

Change in Accounting Principle, Inventory. Winthur Stores began operations on January 1, 2014, and adopted the FIFO method of accounting for its inventory for book and tax purposes In 2017, it is considering a change to the average-cost method basis for book purposes only. Winthur provided the following information to assist in deciding whether to change inventory valuation techniques.

	Ending Inventory		Cost of Sales		Retained Earnings
Year Ended	FIFO	Average Cost	FIFO	Average Cost	FIFO	Average Cost
12/31/2014	$12,000	$10,000	$74,000	$ 76,000	$ 24,600	$23,400
12/31/2015	19,500	16,000	78,500	82,000	51,600	48,300
12/31/2016	28,000	24,000	91,000	95,000	78,000	72,300
12/31/2017	35,600	32,000	90,000	108,000	111,600	95,100

Winthur Stores reported the following income statement information:

Account	2017	2016	2015	2014
Sales revenue	$200,000	$175,000	$160,000	$145,000
Selling, general, and administrative expenses	$54,000	$40,000	$36,500	$30,000
Income tax rate	40%	40%	40%	40%

Required

1. a. Prepare the income statements under both methods for the years ended December 31, 2014, through December 31, 2016.
2. b. Assume that Winthur Stores changes to the average-cost method effective January 1, 2017. Prepare the comparative income statements for the 3 years ended December 31, 2017.
3. c. Prepare the retained earnings column of the statement of stockholders’ equity for the year ended December 31, 2017, assuming that Winthur does not present comparative statements Winthur does not declare dividends in 2014-2017.