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trasher [3.6K]
3 years ago
15

In 2021, CPS Company changed its method of valuing inventory from the FIFO method to the average cost method. At December 31, 20

20, CPS’s inventories were $38 million (FIFO). CPS’s records indicated that the inventories would have totaled $28.6 million at December 31, 2020, if determined on an average cost basis. Required: 1. Prepare the journal entry to record the adjustment. (Ignore income taxes.)
Business
1 answer:
alekssr [168]3 years ago
8 0

Answer:

Entry to record adjustment:

COGS Dr $9.4m

         Inventory Cr $9.4m

Explanation:

The question relates to a change in accounting policy. According to IAS 8 (changes in accounting policy and estimate), a change in accounting policy is to be reflected retrospectively and prospectively, which means any changes should be implemented by bringing changes in the past records. Since CPS company has been using FIFO method, the inventory has been overstated in the financial statements. A shift to AVCO has resulted in a decrease in inventory value.

The value of inventory has to be reduced as a result of change in accounting policy (i.e $38m - $28.6m). This is the closing inventory so a reduction in the value of closing inventory results in an increase in cost of goods sold (COGS), therefore, the adjusting entry will be aimed at reducing inventory and increasing cost of goods sold, see as follows:

Entry:

COGS Dr $9.4m

         Inventory Cr $9.4m

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On January 1, 2015, a company had 250,000 shares of its $2 par value common stock outstanding. On March 1, the company sold an a
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North Airline Company is considering expanding its territory. The company has the opportunity to purchase one of two different u
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Fed can achieve its goals using the given tools as shown below.

<h3>What is money supply?</h3>
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In the given situation, Fed can achieve its goals using the given tools:

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Therefore, Fed can achieve its goals using the given tools as shown.

Know more about money supply here:

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The complete question is given below:
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a. change the reserve req.

b. change the discount rate.

c. use open market operations.

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