A company has the following information related to its ending inventory: Assume 2020 is its first year of operation. The company uses LIFO for external reporting purpose.

FIFO LIFO

12/31/2020 $ 35,000 $ 30,000

12/31/2021 $40,000 $35,000

Which of the following statements is correct?

A)The adjusting entry for the year ending 2020 should be a debit to the LIFO Reserve by $5,000 on 12/31/2021.

B)No adjusting entry to LIFO reserve is necessary on 12/31/2021

C)Cost of goods sold is higher under LIFO than under FIFO in 2021.

D) The adjusting entry should be a credit to the LIFO Reserve by $10,000 on 12/31/2021.