Question

a company reported inventory in the 2023 year-end balance sheet, using the fifo method, as $185,000. in 2024, the company decided to change its inventory method to average cost. if the company had used the average cost method in 2023, ending inventory would have been $171,000. what adjustment would the company make for this change in inventory method?

Answer 1

The company would adjust its 2023 year-end inventory value downward by $14,000 from $185,000 (FIFO) to $171,000 (average cost), affecting cost of goods sold and net income.

Step-by-step explanation:

A company reported inventory on its year-end balance sheet for 2023 using the FIFO (first-in, first-out) method as $185,000. When the company switched to the average cost method in 2024, it found that the inventory would have been valued at $171,000 if the average cost method had been used in 2023. To adjust for this change in inventory method, the company would decrease its ending inventory by $14,000 ($185,000 - $171,000), which would also affect the cost of goods sold and, consequently, the net income for 2023.