3 The Aledo Company, which has only been inbusiness since 2017, decided to change from the Average Cost to theFIFO inventory cost flow assumption for financial reportingpurposes. The following data are available in regard to its pretaxoperating income and cost of goods sold:
                       AverageCost            Â
                       NetIncome                 FIFO Income
Year               AsReported               Net Income
2017Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $40,000Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $48,000
2018Â Â Â Â Â Â Â Â Â Â Â Â Â Â 46,000Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 56,000
2019Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 50,000Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 62,000
Required
1. Ignoring tax effects. Compute thecumulative effect of the change of accounting principle at thebeginning of 2019 and record the journal entry to reflect thechange.
2. What net income would be reportedin the financial statements presented for the years prior to 2019after the accounting change?
