A company begins the year with a zero balance in the LIFO Reserve account. Based on an analysis of LIFO and FIFO, the company determines the LIFO Reserve should be $20,000 at the end of the year? Which journal entry is needed?
A) Debit Cost of Goods Sold for $20,000 and Credit LIFO Reserve for $20,000.
B) Debit LIFO Reserve for $20,000 and Credit Cost of Goods Sold for $20,000.
C) Debit Cost of Goods Sold for $20,000 and Credit Inventory for $20,000.
D) Debit Inventory for $20,000 and Credit Gain on Inventory for $20,000.

Question

Quizplus · Accepted Answer

The LIFO Reserve is adjusted by debiting Cost of Goods Sold and crediting LIFO Reserve to reflect the difference between FIFO and LIFO inventory valuations.

A Company Begins the Year with a Zero Balance in the LIFO