In: Accounting
ohnson Corporation began 2018 with inventory of 10,000 units of its only product. The units cost $8 each. The company uses a periodic inventory system and the LIFO cost method. The following transactions occurred during 2018:
Requirements
Here, we have to have some idea of some terms, for solving the requirements.
Where Company uses LIFO Cost Method- LIFO full form is last in First Out- Means- In LIFO System of valuation of inventory the inventory comes last are assumed to be First Out/Used in Production/Sold.
What is Gross Method to record Purchase Discounts?
Here, Gross Method to record purchase is followed and it is very important while valuations.
In Gross Method – No discounts are considered while recording the purchases. The full value of goods is recorded and while making payment the portion of discounts is recorded, if paid within the discount period.
What Is F.O.B. Shipping Point? What are the differences between F.O.B. Shipping destinations?
F.O.B. Shipping Point means here the buyer must pay for goods to be delivered. Here at F.O.B. Shipping point the title of the goods passes to buyer at the shipping point. Here, Purchase of 50000 Units was F.O.B. Shipping Points.
While, December, 28, 2018, Purchase of 5000 Units was shipped on F.O.B. destination and arrived to Johnson’s Warehouse on Janaury4, 2019. In case of F.O.B. destination Sale , sale take place when the goods are received buyer at his destination. As the goods are received by Johnson only on Janaury, 4th.
It is not to be included as purchase and to be included in inventory Valuation.
Here, In the Terms of the purchases mentionedf- 2/10, n/30, and 100% of the purchases were paid for within the 10-day discount period – But Johnson corporation considered General method but paid as In F.O.B. shipping point immediately- Though as per terms to get 2/10,n/10 means net payment method of 2% discount if paid within 1 days. On 50000 units purchased which after 1000 units return – means effective inventory of 49000 units is will be in valuation of 10x.98=9.80 Per unit Plus 0.50 for freight means-$10.30 per unit.
Purchase Price Of 49000 goods effective purchase- 10x(0.98)+49000x(0.50)=10.30 |
In the Books of Johnson Corporation | |
Statement showing Value of closing inventory | |
Particulars | Amounts ($) |
Early Cost of at the opening- 10000 Units @$8 | 80000 |
Next Earliest Cost of Units in inventory-4000 @ 10.30 | 41200 |
Closing Inventory Value | 121200 |
In the Books of Johnson Corporation | |
Particulars | Amounts ($) |
Cost Of Goods Sold under LIFO Periodic inventory System | 463500 |
Latest cost of goods- (45000 Value of goods @ 10.30) |
In the Books of Johnson Corporation | |
Income before tax for the Year-2018 | |
Particulars | ($) |
Sales(45000x18) | 810000 |
Add,Closing Inventory | 121200 |
Less, Cost of goods sold | 463500 |
Less,Operating expenses | 150000 |
Less, Opening Inventory | 80000 |
Income for 2018 | 237700 |
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