Question

Connors Academy reported inventory in the 2020 year-end balance sheet, using the FIFO method, as $154,000....

Connors Academy reported inventory in the 2020 year-end balance sheet, using the FIFO method, as $154,000. In 2021, the company decided to change its inventory method to LIFO. If the company had used the LIFO method in 2020, the company estimates that ending inventory would have been in the range $130,000-$135,000. What adjustment would Connors make for this change in inventory method?

A) Debit Inventory for $21,500; Credit Cost of goods sold for $21,500.

B) Debit Retained earnings for $24,000; Credit Inventory for $24,000.

C) Debit Retained earnings for $19,000; Credit Cost of goods sold for $19,000.

D) No adjustment is necessary.

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

D. No adjustment is necessary because

Revaluation in Closing stock automatically impacts cost of goods sold.

i.e Cost of goods sold (COGS) = Opening Stock + Purchases - Closing Stock

Say for eg. Opening Stock = 50; Purchases = 100 and Closing stock =30 using FIFO

COGS = 50+100-30 = 120

Company changes valuation of inventory to LIFO method and now closing stock is valued at 40

Thus COGS = 50+100-40 = 110

No entry is thus required.

Note: Amount of purchases is as a result of transactions and Amount of stock is as a result of valuation (whatever method you use).

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The Datema Corporation began 2018 with a balance of $280,000 in its LIFO reserve account. This...
The Datema Corporation began 2018 with a balance of $280,000 in its LIFO reserve account. This balance means that at the beginning of the year, inventory balance under LIFO is $280,000 lower than it would be under FIFO. By the end of 2018, the difference between LIFO and FIFO inventory balances is then $355,000. The LIFO reserve is adjusted to reflect the increase in the reserve. If the LIFO reserve has a normal credit balance, the entry to increase its...
During 2019 (its first year of operations) and 2020, Fieri Foods used the FIFO inventory costing...
During 2019 (its first year of operations) and 2020, Fieri Foods used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2021, Fieri decided to change to the average method for both financial reporting and tax purposes. Income components before income tax for 2019, 2020, and 2021 were as follows: ($ in millions) 2019 2020 2021 Revenues $ 580 $ 590 $ 620 Cost of goods sold (FIFO) (58 ) (60 ) (66...
During 2019 (its first year of operations) and 2020, Fieri Foods used the FIFO inventory costing...
During 2019 (its first year of operations) and 2020, Fieri Foods used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2021, Fieri decided to change to the average method for both financial reporting and tax purposes. Income components before income tax for 2019, 2020, and 2021 were as follows: ($ in millions) 2019 2020 2021 Revenues $ 460 $ 470 $ 500 Cost of goods sold (FIFO) (46 ) (48 ) (54...
Coronado Company began operations on January 1, 2018, and uses the average-cost method of pricing inventory....
Coronado Company began operations on January 1, 2018, and uses the average-cost method of pricing inventory. Management is contemplating a change in inventory methods for 2021. The following information is available for the years 2018–2020. Net Income Computed Using Average-Cost Method FIFO Method LIFO Method 2018 $15,980 $19,140 $12,070 2019 18,090 21,090 14,040 2020 20,130 24,990 16,940 (a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2021. (Credit account...
At the end of the annual accounting period, the inventory records of Boton Company show the...
At the end of the annual accounting period, the inventory records of Boton Company show the following. The company uses FIFO for internal purposes and LIFO for income tax and external reporting purposes. 2020 2021 Ending inventory at FIFO $120,000 $216,000 Ending inventory at LIFO 48,000 84,000 a. Assume that the inventory difference is recognized in the accounts, and the balance in the allowance account was zero at the beginning of 2020. Provide the necessary journal entry at year-end 2020...
In 2022, Karen Corporation changed its method of inventory pricing from LIFO to FIFO. Net income...
In 2022, Karen Corporation changed its method of inventory pricing from LIFO to FIFO. Net income computed on a LIFO as compared to a FIFO basis for the four years involved is: (Ignore income taxes.) LIFO FIFO 2019 $78,900 $87,300 2020 84,500 88,800 2021 86,900 90,300 2022 92,900 92,900 Indicate the net income that would be shown on comparative financial statements issued at 12/31/22 for each of the four years, assuming that the company changed to the FIFO method in...
In 2022, Karen Corporation changed its method of inventory pricing from LIFO to FIFO. Net income...
In 2022, Karen Corporation changed its method of inventory pricing from LIFO to FIFO. Net income computed on a LIFO as compared to a FIFO basis for the four years involved is: (Ignore income taxes.) LIFO FIFO 2019 $78,800 $87,200 2020 84,400 88,700 2021 86,300 90,000 2022 92,400 92,500 Indicate the net income that would be shown on comparative financial statements issued at 12/31/22 for each of the four years, assuming that the company changed to the FIFO method in...
Rockwell Corporation uses a periodic inventory system and has used the FIFO cost method since inception...
Rockwell Corporation uses a periodic inventory system and has used the FIFO cost method since inception of the company in 1979. In 2021, the company decided to switch to the average cost method. Data for 2021 are as follows: Beginning inventory, FIFO (6,500 units @ $25) $ 162,500 Purchases: 6,500 units @ $31 $ 201,500 6,500 units @ $35 227,500 429,000 Cost of goods available for sale $ 591,500 Sales for 2021 (9,000 units @ $78) $ 702,000 Additional Information:...
Flounder Company began operations on January 1, 2018, and uses the average-cost method of pricing inventory....
Flounder Company began operations on January 1, 2018, and uses the average-cost method of pricing inventory. Management is contemplating a change in inventory methods for 2021. The following information is available for the years 2018–2020. Net Income Computed Using Average-Cost Method FIFO Method LIFO Method 2018 $15,900 $19,170 $12,110 2019 17,880 20,980 13,990 2020 20,180 25,060 17,120 (a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2021. (Credit account...
Fantasy Fashions had used the LIFO method of costing inventories, but at the beginning of 2021...
Fantasy Fashions had used the LIFO method of costing inventories, but at the beginning of 2021 decided to change to the FIFO method. The inventory as reported at the end of 2020 using LIFO would have been $25 million higher using FIFO. Retained earnings reported at the end of 2019 and 2020 was $245 million and $265 million, respectively (reflecting the LIFO method). Those amounts reflecting the FIFO method would have been $255 million and $277 million, respectively. 2020 net...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT