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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Grimstad Company uses FIFO for internal reporting purposes and LIFO for financial reporting and income tax purposes. At the end of 2019, the following information was obtained from the inventory records:

Chapter 7, Problem 21E, Grimstad Company uses FIFO for internal reporting purposes and LIFO for financial reporting and

Required:

  1. 1. Prepare the necessary adjusting journal entry assuming that Grimstad converts the accounts to LIFO at the end of 2019.
  2. 2. Indicate how Grimstad would disclose the inventory value on its comparative balance sheets prepared at the end of 2019.
  3. 3. Next Level By how much would Grimstad’s cost of goods sold differ in 2019 if it used FIFO for external reporting?

1.

To determine

Pass the journal entry to record the transfer of accounts to LIFO at 2019 end.

Explanation

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Journalize the to record the transfer of accounts to LIFO at 2019 end:

...
DateAccount TitleDebit ($)Credit ($)
2019Cost of goods sold

2.

To determine

Identify inventory value disclosed on the comparative balance sheet.

3.

To determine

Identify difference in the amount of cost of goods sold if FIFO was used for external reporting.

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