lifo liquidation

In the following question, if retained earnings needs to be increased for LIFO liquidation, what is other side transaction to make balance sheet to balance? Are the inventories increased? ---------------------- Inventories are listed on the balance sheet at $600,000, retained earnings are $1.9 Million. In the notes to financial statements, you find a LIFO reserve of $125,000. Also, the probability of a LIFO liquidation is high. Assuming a tax rate of 36 percent, what will be the adjusted value of retained earnings? A) $1,980,000. B) $1,820,000. C) $1,855,000. D) $1,945,000. Your answer: A was correct! The adjustment to retained earnings will be: $125,000*(1-.36).

Inventory increases by 125,000, and cash decreases by 45,000.