Change in principle; change in inventory cost method

Millington Materials is a leading supplier of building equipment, building products, materials & timber for sale, with over 200 branches across the Mid-South. On January 1, 2016, management decided to change from the LIFO inventory costing method to the FIFO inventory costing method at each of its outlets.

The following table presents information concerning the change. The income tax rate for all years is 40%.

Required:

1. Prepare the journal entry to record the change in accounting principle. (All tax effects should be reflected in the deferred tax liability account.)

2. Determine the net income to be reported in the 2016–2015 comparative income statements.

3. Which other 2015 amounts would be reported differently in the 2016–2015 comparative income statements and 2016–2015 comparative balance sheets than they were reported the previous year?

4. How would the change be reflected in the 2016–2015 comparative statements of shareholders’ equity? Cash dividends were $1 million each year. Assume no dividends were paid prior to 2015.