Question

Q3-

A company that uses a perpetual inventory system made the following cash purchases and sales.  There was no beginning inventory.

January 1:	Purchased 30 units at SAR11 per unit
February 5:	Purchased 30 units at SAR 13 per unit
March 16:	Sold 50 Units for SAR 15 per unit

A.Prepare general journal entries to record the March 16 sale using the

1. FIFO inventory valuation method.
2. LIFO inventory valuation method.
3. Weighted average valuation method.

B. What is the cost of goods sold and the gross margin for each method?

Answer 1

UNDER FIFO METHOD

Mar 16     Cash a/c dr (50 x SAR 15)      SAR 750

                 Sales revenue                               SAR 750

      ( To record cash sales )

Mar 16 Cost of goods sold (30 x 11+ 20 x13)      SAR 590

            Inventory                                   SAR 590        

          (To record cost of goods sold)

UNDER LIFO METHOD

Mar 16     Cash a/c dr (50 x SAR 15)      SAR 750

                 Sales revenue                               SAR 750

      ( To record cash sales )

Mar 16 Cost of goods sold (30 x 13+ 20 x11)      SAR 610

            Inventory                                   SAR 610        

          (To record cost of goods sold)

UNDER WEIGHTED AVERAGE

WAC per unit = Cost of goods available for sale / units available for sale = 30x11 + 30 x 13 / 60 = 12 per unit Cost of goods sold = 50 * 12 = SAR 600

Mar 16     Cash a/c dr (50 x SAR 15)      SAR 750

                 Sales revenue                               SAR 750

      ( To record cash sales )

Mar 16 Cost of goods sold        SAR 600

            Inventory                                   SAR 600       

          (To record cost of goods sold)

b)

Cost of goods sold

FIFO = SAR 590

LIFO = SAR 610

WAC = SAR 600

Gross profit = Sales - Cost of goods sold

FIFO= SAR 750 - SAR 590 = SAR 160

LIFO= SAR 750 - SAR 610 = SAR 140

WAC = SAR 750 - SAR 600 = SAR 150