Carlton Company uses the LIFO inventory method, but most of the other companies in Carton’s industry use FIFO. Which of the following best descirbes one of the adjustments that wouldl be made to Carlton’s financial statements to compoare Carlton with other companies in the industry? An increase in CArlton’s LIFO reserve for the year woud be: A) added to ending inventory B) added to cost of goods sold C) subtracted from ending inventory D) subtracted from COGS Correct answer is D I understand that COGS(FIFO) = COGS(LIFO) - (change in LIFO reserve) but is A also correct cus FIFO inventory = LIFO inventory + LIFO reserve? so if LIFO reserve is increased then shouldn’t adjust FIFO inventory up? Thanks in advance. CFAI explanations are worthless.
You would just add the LIFO Reserve onto ending inventory not the INCREASE in LIFO Reserve.
Think about it…an INCREASE in in LIFO reserve is the same thing as a CHANGE in LIFO reserve. therefore the only one that fits is to subtract an increase in LIFO reserve from LIFO COGS.