Question

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Goddard Company has used the FIFO method of inventory valuation since it began operations in 2018. Goddard decided ho change to the average cost method for determining inventory costs at the beginning of 2021. The following schedule shows year-end inventory balances under the FIFO and average cost methods: Year 2018 2019 2020 FIFO $45,900 80,700 86,600 Average Cost $55,800 71,900 80,700 Required: 1. Ignoring income taxes, prepare the 2021 journal entry to adjust the accounts to reflect the average cost method. 2. How much higher or lower would cost of goods sold be in the 2020 revised income statement? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Ignoring income taxes, prepare the 2021 journal entry to adjust the accounts to reflect the average cost method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) No Event General Journal Credit Debit 5,900 Cost of goods sold Inventory 5,900 < Required 1 Required 2 >

Answer 1

Answer:

1
Date	Account Titles and Explanation	Debit($)	Credit($)
2021	Retained Earnings	5,900
	Inventory		5,900
	($86,600 - $80,700)
	(To record adjustment entry recorded)

2
	FIFO	-	Average cost
2019	80,700	-	71,900	=	8,800	(a)
2020	86,600	-	80,700	=	5,900	(b)
	Higher or lower cost of goods sold			=	2,900	(a) - (b)
	Therefore, Cost of goods sold is lower by $2,900 in year 2020.