On January 1, 2018, Devoe Company changed from the FIFO method to the average cost method to account for inventory. The company
provided the following ending inventory for each method:
2017 2018
FIFO 350,000 700,000
Average cost 250,000 450,000
The company reported the following income statement using the FIFO method:
2017 2018
Sales 5,000,000 6,500,000
Cost of sales 3,500,000 4,500,000
Operating expenses 750,000 1,000,000
Income before tax 750,000 1,000,000
Income tax expense 225,000 300,000
The company accrues income tax expense on December 31 of each year and paid the tax in the following year. The income tax rate is
30%.
2. What amount of profit should be reported in 2018 after the accounting change?
A. 595,000 B. 805,000 C. 850,000 D. 1,150,000