Butler Company reported ending inventory at December 31, 2017 of $1,200,000 under LIFO. It also reported a LIFO reserve of $210,000 at January 1, 2017, and $300,000 at December 31, 2017. Cost of goods sold for 2017 was $4,900,000. If Butler Company had used FIFO during 2017, its cost of goods sold for 2017 would have been

Question

Quizplus · Accepted Answer

Under LIFO, the cost of goods sold is calculated by taking the cost of the most recent inventory purchases first. Therefore, the ending inventory of $1,200,000 is made up of older, lower-cost inventory items.

To calculate the cost of goods sold under FIFO, we assume that the most recent inventory purchases are sold first. Therefore, the cost of goods sold will be higher under FIFO, as it is based on the cost of more recent, higher-priced inventory items.

To calculate the cost of goods sold under FIFO, we need to adjust for the LIFO reserve. The increase in LIFO reserve from $210,000 to $300,000 means that the cost of goods sold would be $90,000 lower under FIFO.

Therefore, the cost of goods sold under FIFO would be:

Cost of goods sold under LIFO - increase in LIFO reserve = $4,900,000 - $90,000 = $4,810,000

So, the correct answer is C.

Butler Company Reported Ending Inventory at December 31, 2017 of $1,200,000