Question

Brief Exercise 8-17 (Algo) LIFO reserve increasing [LO8-6] King Supply maintains its internal inventory records using perpetual FIFO, but for financial reporting purposes, reports ending Fiventory and cost of goods sold using periodic LIFO. At the beginning of the year, the company had a balance of $70,000 in its LFO reserve account. By the end of the yeat, internal records reveol that FIFO ending inventory is $81,000 greater than LIFO ending inventory. Record the year-end adjusting entry for the LIFO reserve, Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.

Answer 1

To adjust for the LIFO reserve increase of $81,000, the entry is a debit to the LIFO reserve account and a credit to the inventory account, ensuring alignment with financial reporting requirements.

Step-by-step explanation:

The student is asking for the year-end adjusting entry for the LIFO reserve when using periodic LIFO for financial reporting, despite keeping perpetual FIFO records internally. With a LIFO reserve increase of $81,000 from the beginning of the year, the entry needed to align the internal records with the financial reporting would be to debit the LIFO reserve account and credit the inventory account for $81,000. This adjusting entry ensures the ending inventory on the balance sheet is presented under periodic LIFO and accounts for the change in the LIFO reserve from the FIFO method used internally.

Answer 2

The adjusting journal entry to reflect the increase in LIFO reserve is a debit to LIFO Reserve and a credit to Inventory, each by $81,000. This aligns the internal FIFO records with the periodic LIFO reporting for financial statements.

Step-by-step explanation:

You asked about recording the year-end adjusting entry for the LIFO reserve. At the beginning of the year, King Supply had a LIFO reserve balance of $70,000. By the end of the year, FIFO's ending inventory is $81,000 greater than LIFO's ending inventory. The LIFO reserve must be adjusted to reflect this increase.

The adjusting journal entry to record the increase in LIFO reserve by $81,000 would be:

• Debit LIFO Reserve for $81,000
• Credit Inventory for $81,000

This entry increases the LIFO reserve on the balance sheet, while also decreasing the FIFO-based inventory value to arrive at the LIFO-based inventory value on the financial statements.