Question

Halston Corporation uses the FIFO method for internal reporting purposes and LIFO for external reporting purposes. The balance in the LIFO Reserve account at the end of 2012 was $60,000. The balance in the same account at the end of 2013 is $90,000. Halston's Cost of Goods Sold account has a balance of $450,000 from sales transactions recorded during the year. What amount should Halston report as Cost of Goods Sold in the 2013 income statement?

a.$480,000.
b.$450,000.
c.$420,000.
d.$540,000.

Answer 1

Halston Corporation should report a Cost of Goods Sold of $480,000 for the year 2013, after adjusting the FIFO-based COGS by the $30,000 increase in the LIFO Reserve from 2012 to 2013. Hence, the correct answer is option A.

Step-by-step explanation:

The student asked what amount Halston Corporation should report as Cost of Goods Sold (COGS) in the 2013 income statement, given that the LIFO Reserve increased from $60,000 at the end of 2012 to $90,000 at the end of 2013 and that the COGS account shows a balance of $450,000.

To determine the correct COGS for external reporting purposes using LIFO, we need to adjust the FIFO-based COGS ($450,000) by the change in LIFO Reserve. The change in LIFO Reserve from 2012 to 2013 is an increase of $30,000 ($90,000 - $60,000).

Since LIFO results in higher COGS during periods of rising prices, we add the increase in LIFO Reserve to the FIFO-based COGS. Thus, the reported COGS using LIFO for 2013 would be $480,000 (FIFO-based COGS of $450,000 + increase in LIFO Reserve of $30,000).