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

Answer 1

COGS adjusted for LIFO for external reporting is $480,000, calculated by adding the increase in LIFO reserve ($30,000) to the internally reported COGS of $450,000. d. $450,000.

Step-by-step explanation:

The question pertains to calculating the correct amount of Cost of Goods Sold (COGS) using the LIFO reserve adjustment for external reporting purposes. Halston Corporation uses FIFO for internal reporting purposes, but must adjust the COGS for external reporting purposes using LIFO. The LIFO reserve at the end of 2012 was $60,000 and increased to $90,000 by the end of 2013. This represents an increase of $30,000 in the LIFO reserve. Therefore, to calculate the COGS reported on the income statement, we add this increase to the internally reported COGS balance.

COGS for external reporting = Internal COGS + Increase in LIFO Reserve = $450,000 + $30,000 = $480,000.

Hence, the correctly adjusted COGS on the 2013 income statement using LIFO should be $480,000 for external reporting purposes.