5. Recording and Reporting a LIFO Reserve

At the end of the annual accounting period, the inventory records of Boton Company show the following. The company uses FIFO for internal purposes and LIFO for income tax and external reporting purposes.

	Prior Year	Current Year
Ending inventory at FIFO	$120,000	$216,000
Ending inventory at LIFO	48,000	84,000

a. Assume that the inventory difference is recognized in the accounts, and the balance in the allowance account was zero at the beginning of the prior year. Provide the necessary journal entry at the end of the prior year and current year to adjust the LIFO reserve.

Date	Account Name	Dr.	Cr.
Dec. 31	CashAccounts ReceivableInventoryAllowance to Reduce FIFO Inventory to LIFO BasisAccounts PayableDeferred RevenueSales RevenueCost of Goods SoldFreight-inPurchasesPurchase DiscountsPurchase Returns and AllowancesInterest ExpenseN/A
	CashAccounts ReceivableInventoryAllowance to Reduce FIFO Inventory to LIFO BasisAccounts PayableDeferred RevenueSales RevenueCost of Goods SoldFreight-inPurchasesPurchase DiscountsPurchase Returns and AllowancesInterest ExpenseN/A
Dec. 31	CashAccounts ReceivableInventoryAllowance to Reduce FIFO Inventory to LIFO BasisAccounts PayableDeferred RevenueSales RevenueCost of Goods SoldFreight-inPurchasesPurchase DiscountsPurchase Returns and AllowancesInterest ExpenseN/A
	CashAccounts ReceivableInventoryAllowance to Reduce FIFO Inventory to LIFO BasisAccounts PayableDeferred RevenueSales RevenueCost of Goods SoldFreight-inPurchasesPurchase DiscountsPurchase Returns and AllowancesInterest ExpenseN/A

b. Show how inventory should be shown on its comparative balance sheets for the prior and current years.

Balance Sheet, Dec 31	Prior Year	Current Year
Current Assets
Inventory

c. If the company reported cost of goods sold of $576,000 in the current year using LIFO, what would cost of goods sold be using FIFO?

$Answer