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

Dr Cost of Goods Sold 20,000

Cr LIFO Reserve (20,000 )

Step-by-step 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 )