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16 April, 10:11

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?

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  1. 16 April, 12:15
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    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)
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Home » Business » 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.
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