Goddard Company has used the FIFO method of inventory valuation since it began operations in 2013. Goddard decided to change to the average cost method for determining inventory costs at the beginning of 2016. The following schedule shows year-end inventory balances under the FIFO and average cost methods: Year FIFO Average Cost 2013 $45,000 $54,000 2014 78,000 71,000 2015 83,000 78,000 Required: 1. Ignoring income taxes, prepare the 2016 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 2015 revised income statement?

Question
Asked Jan 27, 2020
25 views

Goddard Company has used the FIFO method of inventory valuation since it began operations in 2013. Goddard decided to change to the average cost method for determining inventory costs at the beginning of 2016. The following schedule shows year-end inventory balances under the FIFO and average cost methods: Year FIFO Average Cost 2013 $45,000 $54,000 2014 78,000 71,000 2015 83,000 78,000 Required: 1. Ignoring income taxes, prepare the 2016 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 2015 revised income statement?

check_circle

Expert Answer

Step 1

Method of Inventory: Inventory refers to the current assets that a company expects to sell during the normal course of business operations, the goods that are under process to be completed for future sale, or currently used for producing goods to be sold in the market. Inventory is valued under three methods:

FIFO: Under this inventory method, the units that are purchased first, are sold first. Thus, it starts from the selling of the beginning inventory, followed by the units purchased in a chronological order of their purchases took place during a particular period.

LIFO: Under this inventory method, the units that are purchased last, are sold first. Thus, it starts from the selling of the units recently purchased and ending with the beginning inventory.

Average cost method: Under this method, the cost of the goods available for sale is divided by the number of units available for sale during a particular period.

Step 2

1.

Prepare the 2016 journal entry to adjust the acco...

Accounting homework question answer, step 2, image 1
fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Accounting

Financial Accounting

Related Accounting Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: Morlan Corporation is preparing its December 31, 2020, financial statements. Two events that occurre...

A: Net income: The bottom line of income statement which is the result of excess of earnings from opera...

question_answer

Q: If current liabilities increase, what is the effect on cash? What about a decrease in current liabil...

A:  Liabilities: The claims creditors have over assets or resources of a company are referred to as lia...

question_answer

Q: Snider Corporation, a publicly traded company, is preparing the interim financial data which it will...

A: 1.1In accordance with IFRS, Snider corporation should report its quarterly results as an integral pa...

question_answer

Q: Leather Shop earned a net income of $57,000 after deducting depreciation of $5,000 and all other exp...

A: Statement of cash flows: It is one of the financial statement that shows the cash and cash equivalen...

question_answer

Q: Contrast accounting for pensions to accounting for other postretirement benefits.

A: Pension plan: This is the plan devised by corporations to pay the employees an income after their re...

question_answer

Q: On September 22, 2016, a flood destroyed the entire merchandise inventory on hand in a warehouse own...

A: Gross profit method:

question_answer

Q: On January 3, 2019, Martin Company purchased for $500,000 cash a 10% interest in Renner Corp. The fa...

A: The journal entry here is passed up to December 31, 2019 related to R Corporation and for change fro...

question_answer

Q: Peter Henning Tool Company's December 31 year-end financial statements contained the following error...

A: Click to see the answer

question_answer

Q: Shin Corporation had a projected benefit obligation of $3,100,000 and plan assets of $3,300,000 at J...

A: Amortization: Amortization is a process in which the cost of intangible assets is spread equally ove...