Question

Johnson Corporation began 2018 with inventory of 19,000 units of its only product. The units cost $7 each. The company uses a periodic inventory system and the LIFO cost method. The following transactions occurred during 2018:

1. Purchased 95,000 additional units at a cost of $10 per unit. Terms of the purchases were 3/10, 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. 1,900 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 90,000 units at $16 per unit.
4. On December 28, 2018, Johnson purchased 5,900 additional units at $12 each. The goods were shipped f.o.b. destination and arrived at Johnson's warehouse on January 4, 2019.
5. 22,100 units were on hand at the end of 2018.

Required:
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 $168,000, determine income before income taxes for 2018.
  

Answer 1

1.

Cost of Ending Inventory
Details	Number of units	Rate	Amount
Beginning Balance	19,000.00	7.00	133,000.00
2018	3,100.00	10.20	31,620.00
Cost of Ending Inventory	164,620.00

Working Note-

Purchase cost = (10 x 97%) +0.5

=10.2

Beginning Inventory		133,000.00
Add: Net Purchase
Purchases	950,000.00
Purchases Returns	-   19,950.00
Purchase Discounts	-   27,930.00
Frieght in	47,500.00
Cost of Goods Available for Sale		949,620.00
Ending Inventory		- 164,620.00
Cost of Goods Sold		918,000.00

2.

Sales	1,440,000.00
Cost of Goods Sold	918,000.00
Gross Profit	522,000.00
Operating Expenses	168,000.00
Income before Income taxes	354,000.00