Black Corporation uses the FIFO method for internal reporting purposes and LIFO for external reporting purposes. The balance in the LIFO Reserve account at the end of 2014 was $140,000. The balance in the same account at the end of 2015 is $210,000. Black's Cost of Goods Sold account has a balance of $1,050,000 from sales transactions recorded during the year. What amount should Black report as Cost of Goods Sold in the 2015 income statement?
A) $ 980,000.
B) $1,050,000.
C) $1,120,000.
D) $1,260,000.

Question

Quizplus · Accepted Answer

The LIFO Reserve increased by $70,000 ($210,000 - $140,000), which means that the cost of goods sold must have decreased by $70,000 in order to generate a higher gross profit (since higher cost of goods sold means lower gross profit).

Therefore, the cost of goods sold under the LIFO method for 2015 would be:
Cost of Goods Sold (FIFO) - Increase in LIFO Reserve
$1,050,000 - $70,000
= $1,120,000

This is the amount that should be reported as Cost of Goods Sold in the 2015 income statement.

Black Corporation Uses the FIFO Method for Internal Reporting Purposes