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?

Question

Wade Lin

Business

21 October, 00:22

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?

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Answers (1)

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Amare Obrien · Answer 1

Dr Cost of Goods Sold 20,000

Cr LIFO Reserve (20,000)

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)