Question

John Olerud Ltd., a local retailing concern in the Bronx, New York, has decided to change from the conventional retail inventory method to the LIFO retail method starting on January 1, 2018. The company recomputed its ending inventory for 2017 in accordance with the procedures necessary to switch to LIFO retail. The inventory computed was \(212,600. Instructions Assuming that John Olerud Ltd.’s ending inventory for 2017 under the conventional retail inventory method was \)205,000, prepare the appropriate journal entry on January 1, 2018.

Short answer

In the journal entry, inventory (beginning) will be debited, and adjustment to record inventory at cost will be credited by $7,600, respectively.

Step-by-step solution

Calculation of adjustment

The adjustment amount is calculated as follows:

$$\begin{gathered} \mathrm{Adjustment}\mathrm{Amount}=\mathrm{Inventory}\mathrm{as}\mathrm{Per}\mathrm{LIFO}\mathrm{Retail}-\mathrm{Inventory}\mathrm{as}\mathrm{Per}\mathrm{Conventional}\mathrm{Retail} \\ =\$212,600-\$205,000 \\ =\$7,600 \end{gathered}$$

Journal entry

The following journal entry will be recorded:

Date	Description	Debit	Credit
January 1, 2018	Inventory (beginning)	$7,600
	Adjustment to record inventory at cost		$7,600
	(Being adjusted to record inventory at cost)