Question

Spando Apparel uses the LIFO inventory method for external reporting and for income tax purposes but maintains its internal records using FIFO. The following disclosure note was included in a recent annual report: Inventories ($ in millions): Total inventories LIFO reserve 2021 $ 679 (119) $ 560 2eze $658 (69) $589 The company's income statement reported cost of goods sold of $3,300 million for the fiscal year ended December 31, 2021 Required: 1. Spando adjusts the LIFO reserve at the end of its fiscal year. Prepare the December 31, 2021, adjusting entry to record the cost of goods sold adjustment. 2. If Spando had used FIFO to value its inventories, what would cost of goods sold have been for the 2021 fiscal year? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Spando adjusts the LIFO reserve at the end of its fiscal year. Prepare the December 31, 2021, adjusting entry to record the cost of goods sold adjustment. (Enter your answers in millions. If no entry is required for a transaction/event, select "No journal entry required in the first account field.) View transaction list Journal entry worksheet < Record the cost of goods sold adjustment. Note: Enter debts before credits Transaction General Journal Debit Credit 1 Record entry Clear entry View general journal Required 2 >

Answer 1

1. Preparation of Dec 31, 2021 adjustment entry to record the cost of goods sold adjustment:

The current year LIFO Reserve is to be adjusted to the cost of goods sold.

Current year LIFO Reserve

= change in LIFO Reseverve

= LIFO Reserve balance at the end of 2021 - LIFO Reserve balance at the end of 2020

= $119 - $69

=$50

Thr adjustment entry is as follows,

Date	General Journal	Debit	Credit
Dec31, 2021	Cost of goods sold	$50
	LIFO Reserve		$50
	(To record the cost of goods sold adjustment)

2. If spendo used FIFO to value its inventories, Cost of goods sold for the fiscal year 2021 is:

In order to value the cost of goods sold using FIFO, the current year LIFO reserve should be added to the cost of goods sold reported in income statement of fiscal year 2021.

Cost of goods sold, FIFO

= COGS as per income statement + Current year LIFO reserve

= $3300 + $50

= $3350

Therefore,

Cost of goods sold

$3350 million

________×_________

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