Question

Drew Co. uses the average cost inventory method for internal reporting purposes and LIFO for financial statement and income tax reporting. At December 31, the inventory was $375,000 using average cost and $320,000 using LIFO. The unadjusted credit balance in the LIFO reserve account on December 31 was $35,000. What adjusting entry should Drew record to adjust from average cost to LIFO at December 31?

Answer 1

Answer:

Dr Cost of Goods Sold  20,000

Cr LIFO Reserve           (20,000 )

Explanation:

Journal Entry    

Dr Cost of Goods Sold  20,000

Cr LIFO Reserve                 (20,000 )

Ending Balances after adjustment:  

 

Stocks:

Inventories        375,000

LIFO Reserve     (55,000 )

Total:                   320,000   ( Financial Statement and Income Tax compliance )