Ask Question
18 November, 11:35

In 2018, CPS Company changed its method of valuing inventory from the FIFO method to the average cost method. At December 31, 2017, CPS's inventories were $32 million (FIFO). CPS's records indicated that the inventories would have totaled $23.8 million at December 31, 2017, if determined on an average cost basis.

Prepare the journal entry to record the adjustment. (Ignore income taxes.) (Enter your answers in millions (i. e., 5,500,000 should be entered as 5.5). Round your answers to 1 decimal place. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

+3
Answers (1)
  1. 18 November, 12:51
    0
    Dr Retained earnings $8.2

    Cr Inventory $8.2

    Explanation:

    By changing method of an inventory valuation, the company should apply it retrospectively based on IAS 8 guidelines on change in accounting estimates and errors. Thus, the said difference from FIFO method to Weighted Average method of valuation should be credited directly against Retained earnings account because, accounts are already closed right after the year ended.

    $32-$23.8 = $8.2 million

    To record the said adjustment you have to

    Debit Retained earnings and credit Inventory in the amount of $8.2 million.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “In 2018, CPS Company changed its method of valuing inventory from the FIFO method to the average cost method. At December 31, 2017, CPS's ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers