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Melas Company changed from the LIFO to the FIFO inventory costing method on January 1, Year 3. Inventory values at the end of each year since the inception of the company are as follows:
FIFO LIFO
Year 1 $ 195,000 $ 177,500
Year 2 390,000 355,000
Ignoring income tax considerations, prepare the appropriate journal entry, dated January 1, Year 3, to report this accounting change. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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Answer:

Please check the record as follows. 52.500 in both records.

Explanation:

Inventory                 52.500 -Debit-  

Retained earnings  52.500  -Credit-

(to record change the accounting change)

(195,000-177,500) * 2 years = 52.500

FIFO - LIFO of year 1

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