John Olerud Ltd., a local retailing concern in the Bronx, New York, has decided to change from the conventional retail inventory method to the LIFO retail method starting on January 1, 2021. The company recomputed its ending inventory for 2020 in accordance with the procedures necessary to switch to LIFO retail. The inventory computed was $212,600. Instructions Assuming that John Olerud Ltd.’s ending inventory for 2020 under the conventional retail inventory method was $205,000, prepare the appropriate journal entry on January 1, 2021.

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A: Working:

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A:

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A:

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A:

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A:

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.