Prepare the journal entry at the beginning of 2011

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Fantasy Fashions had used the LIFO method of costing inventories, but at the beginning of 2011 decided to change to the FIFO method. The inventory as reported at the end of 2010 using LIFO would have been $20 million higher using FIFO.
Retained earnings reported at the end of 2009 and 2010 was $240 million and $260 million, respectively (reflecting the LIFO method). Those amounts reflecting the FIFO method would have been $250 million and $272 million, respectively. 2010 net income reported at the end of 2010 was $28 million (LIFO method) but would have been $30 million using FIFO. After changing to FIFO, 2011 net income was $36 million. Dividends of $8 million were paid each year. The tax rate is 40%.

Required:

1. Prepare the journal entry at the beginning of 2011 to record the change in accounting principle.

2. In the 2011-2010 comparative income statements, what will be the amounts of net income reported for 2010 and 2011?

3. Prepare the 2011-2010 retained earnings column of the comparative statements of shareholders' equity.

Reference no: EM131008554

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