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Knowledge Check 01 Octavia Corporation uses perpetual FIFO throughout the year to maintain internal records but...

Knowledge Check 01
Octavia Corporation uses perpetual FIFO throughout the year to maintain internal records but at the end of the year adjusts these amounts to LIFO for financial reporting purposes. The company began the year with a credit balance of $50,000 in its LIFO reserve account. By the end of the year, the difference between LIFO and FIFO inventory balances increased to $60,000. Prepare the appropriate adjusting journal entry dated as of the end of the year.

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Answer #1

LIFO reserve beginning balance = $50,000

Difference between LIFO and FIFO inventory at the year end = $60,000

Hence, LIFO reserve ending balance = $60,000

Increase in LIFO reserve during the year = LIFO reserve Ending balance - LIFO reserve beginning balance

= 60,000-50,000

= $10,000

General Journal Debit Credit
Cost of goods sold $10,000
LIFO reserve $10,000

Kindly comment if you need further assistance. Thanks‼!

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