Intermediate Accounting
1st Edition
ISBN: 9780132162302
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Textbook Question
Chapter 10, Problem 10.9BE
LIFO Reserve. Best Stores is considering a change in its
| Description | FIFO Cost | LIFO Cost |
| Beginning inventory: January 1 | $11,800 | $9,600 |
| Ending inventory; December 31 | $14,100 | $11,150 |
Cost of goods sold under the LIFO basis is $34,500 for the current year.
Best Stores would like to use LIFO for tax purposes but wants to be sure that its shareholders will be able to convert the LIFO financial statements to a FIFO basis Provide Best Stores with an illustration of how financial statement users can convert LIFO to the FIFO basis.
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Students have asked these similar questions
Diderot Stores Inc., which uses the conventional retail inventory method, wishes to change to the LIFO retail method beginning with the accounting year ending December 31, 2020.
Amounts as shown below appear on the store’s books before adjustment.
Cost
Retail
Inventory, January 1, 2020
$ 15,800
$ 24,000
Purchases in 2020
116,200
184,000
Markups in 2020
12,000
Markdowns in 2020
5,500
Sales revenue in 2020
175,000
You are to assume that all markups and markdowns apply to 2020 purchases, and that it is appropriate to treat the entire inventory as a single department.
Instructions
Compute the inventory at December 31, 2020, under the following methods.
a. The conventional retail method.
b. The last-in, first-out retail method, effecting the change in method as of January 1, 2020. Assume that the cost-to-retail percentage for 2019 was recomputed correctly in accordance with procedures necessary to change to LIFO. This ratio was 59%.
Waterway 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
$16,110
$18,880
$12,030
2019
17,960
20,820
13,910
2020
20,000
24,850
17,140
(a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit
Enter an account title
Enter a debit amount
Enter a credit amount
Enter an account title
Enter a debit amount
Enter a credit amount
(b) Determine net income to be…
Nutritional Foods reports merchandise inventory at the lower-of-cost-or-market. Prior to releasing its financial statements for the year ended January 31, 2025, Nutritional's preliminary income statement, before
the year-end adjustments, appears as follows:
(Click the icon to view the preliminary income statement.)
Nutritional has determined that the current replacement cost of ending merchandise inventory is $18,000. Cost is $20,000.
Read the requirements.
Requirement 1. Journalize the adjusting entry for merchandise inventory, if any is required. (Record debits first, then credits. Select the explanation on the last line of the journal entry. For situations that do not require
an entry, make sure to select "No entry required" in the first cell in the "Accounts" column and leave all other cells blank.)
Date
Accounts and Explanation
Debit
Credit
Jan. 31
Requirements
1. Journalize the adjusting entry for merchandise inventory, if any is required.
2. Prepare a revised partial income…
Chapter 10 Solutions
Intermediate Accounting
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