White 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 $160,000. The balance in the same account at the end of 2015 is $240,000. White's Cost of Goods Sold account has a balance of $1,200,000 from sales transactions recorded during the year. What amount should White report as Cost of Goods Sold in the 2015 income statement?
A) $1,120,000.
B) $1,200,000.
C) $1,280,000.
D) $1,440,000.

Question

Quizplus · Accepted Answer

The increase in the LIFO reserve from $160,000 to $240,000 ($80,000) indicates that the FIFO cost of goods sold is $80,000 less than the LIFO cost of goods sold. Therefore, to adjust the LIFO COGS ($1,200,000) to FIFO COGS for internal reporting, you subtract the increase in the LIFO reserve: $1,200,000 - $80,000 = $1,120,000. However, for external reporting using LIFO, the reported COGS remains $1,200,000, as the question asks for the amount to be reported in the income statement, which implies external reporting. The confusion in the explanation arises because the question's setup implies a need for adjustment based on the LIFO reserve change, but the correct interpretation for external reporting under LIFO does not require adjusting the COGS with the LIFO reserve change. The correct COGS for external reporting purposes remains as initially recorded ($1,200,000), but the question's phrasing about the LIFO reserve's role might lead to incorrectly adjusting the COGS for external purposes.

White Corporation Uses the FIFO Method for Internal Reporting Purposes