Question

Bramble Corp. uses the FIFO method for internal reporting purposes and LIFO for external reporting purposes. The balance in the LIFO Reserve account at the end of 2020 was $291000. The balance in the same account at the end of 2021 is $427000. Bramble’s Cost of Goods Sold account has a balance of $2190000 from sales transactions recorded during the year. What amount should Bramble report as Cost of Goods Sold in the 2021 income statement?

Answer 1

Answer:

Amount to be reported will be $2,335,500

Explanation:

Given

LIFO Balance = $291,000

LIFO Balance at 2021 = $427,000

Cost of goods = $2,190,000

First we need to calculate the LIFO reserve.

This is calculated by getting the allowance to reduce Inventory to LIFO.

In other words, it is the change in the allowance balance from one period to the next

= ½ * $291,000

= $145,000

The journal entry would look like this (below)

Dr Cost of Goods Sold $145,500

Cr Allowance to Reduce Inventory to LIFO $145,500

And the amount to be reported will be calculated as follows

$2,190,000 + $145,500 = $2,335,500