Question

Uses the LIFO inventory method for external reporting and for income tax purposes but maintains its internal records using FIFO. The following disclosure note was included in a recent annual report:
Inventories ($ in millions):
2021 2020
Total inventories $800 $650
LIFO reserve (86) (65)

The company's income statement reported cost of goods sold of $3,750 million for the fiscal year ended December 31, 2021.

Required:
a. Drew adjusts the LIFO reserve (Allowance to Reduce Inventory to LIFO) at the end of its fiscal year. Prepare the December 31, 2013, adjusting entry to record the cost of goods sold adjustment.
b. If Drew had used FIFO to value its inventories, what would cost of goods sold have been for the 2013 fiscal year?

Answer 1

Answer:

A. Dr Cost of goods sold $21

Cr LIFO reserve $21

B.$3,729

Explanation:

A. Preparation of the December 31, 2021, adjusting entry to record the cost of goods sold adjustment.

Based on the information given in a situation were Drew adjusts the LIFO reserve at the end of its fiscal year which means that the December 31, 2021, adjusting journal entry to record the cost of goods sold adjustment will be:

Dr Cost of goods sold $21

($86 – 65)

Cr LIFO reserve $21

b. Calculation for what would cost of goods sold have been for the 2021 fiscal year

Cost of goods sold=$3,750 – $21

Cost of goods sold= $3,729

Therefore what the cost of goods sold could have been for the 2013 fiscal year is $3,729