Nidal Company reported inventory in the 2017 year-end balance sheet, using the FIFO method, as $185,000. In 2018, the company decided to change its inventory method to average cost. If the company had used the average cost method in 2017, ending inventory would have been $171,000. What adjustment would Nidal make for this change in inventory method?
A) Debit Inventory for $14,000; Credit Cost of goods sold for $14,000.
B) Debit Retained earnings for $14,000; Credit Inventory for $14,000.
C) Debit Retained earnings for $14,000; Credit Cost of goods sold for $14,000.
D) No adjustment is necessary.

Question

Quizplus · Accepted Answer

The adjustment records the decrease in inventory of $14,000 ($185,000 ? $171,000) and the decrease in retained earnings, as if average cost had been used in 2017.

Nidal Company Reported Inventory in the 2017 Year-End Balance Sheet