FIFO Used Internally, LIFO Used Externally
Response to the following problem:
The Grimstad Company uses FIFO for internal reporting purposes and LIFO for financial reporting and income tax purposes. At the end of 2010, the following information was obtained from the inventory records:
2009 2010
Ending inventory, FIFO $100,000 $140,000
Ending inventory, LIFO 80,000 115,000
Required
1. Prepare the necessary adjusting journal entry, assuming that the company converts the accounts to LIFO at the end of 2010.
2. Indicate how the company would disclose the inventory value on its comparative balance sheets prepared at the end of 2010.
3. By how much would the company's cost of goods sold be different in 2010 if it used FIFO for external reporting?