Question

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:

1. Purchased 50,000 additional units at a cost of $10 per unit. Terms of the purchases were 2/10, n/30, and 100% of the purchases were paid for within the 10-day discount period. The company uses the gross method to record purchase discounts. The merchandise was purchased f.o.b. shipping point and freight charges of $0.50 per unit were paid by Johnson.
2. b. 1,000 units purchased during the year were returned to suppliers for credit. Johnson was also given credit for the freight charges of $0.50 per unit it had paid on the original purchase. The units were defective and were returned two days after they were received.
3. Sales for the year totaled 45,000 units at $18 per unit.
4. On December 28, 2018, Johnson purchased 5,000 additional units at $10 each. The goods were shipped f.o.b. destination and arrived at Johnson's warehouse on January 4, 2019.
5. 14,000 units were on hand at the end of 2018.

Requirements

1. Complete the below table to determine the ending inventory and cost of goods sold for 2018.
2. Assuming that operating expenses other than those indicated in the above transactions amounted to $150,000, determine income before income taxes for 2018.

Answer 1

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

Thanks.