In 2013, the Barton and Barton Company changed its method of valuing inventory f

Question

In 2013, the Barton and Barton Company changed its method of valuing inventory from the FIFO method to the average cost method. At December 31, 2012, B & B’s inventories were $32 million (FIFO). B & B’s records indicated that the inventories would have totaled $23.8 million at December 31, 2012, if determined on an average cost basis. Ignoring income taxes, what journal entry will B & B use to record the adjustment in 2013? Briefly describe other steps B & B should take to report the change.

Explanation / Answer

FIFO 31-Dec-12 Inventories 32 Million Average Cost Method 31-Dec-12 23.8 Million In 2013 Opening Inventory will be reduced by 32-23.8 8.2 Retained Earnings Dr 8.2 Million To Inventories 8.2

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