Drew Co. uses the average cost inventory method for internal reporting purposes and LIFO for financial statement and income tax reporting.  At December 31, 1992, the inventory was $375,000 using average cost and $320,000 using LIFO.  The unadjusted credit balance in the LIFO Reserve account on December 31, 1992, was $35,000.  What adjusting entry should Drew record to adjust from average cost to LIFO at December 31, 1992?

Debit Credit
a.Cost of Goods Sold$55,000 Inventory$55,000 b.Cost of Goods Sold$55,000 LIFO Reserve$55,000 c.Cost of Goods Sold$20,000 Inventory$20,000 d.Cost of Goods Sold$20,000 LIFO Reserve$20,000

Answer is D

Why is LIFO reserve account getting credited here?

Because the reserve was $35,000 and it needs to be $55,000 - the differeence between $375 and 320; Inventory is a debit of $375 you need a reserve (credit) of $55 to get to the $320 for LIFO.

Hopes that helps