Question

Lynbrook, Inc. has recently decided to diversity its business by selling cases of paper to supplement their delivery services business. As the Controller of Lynbrook, Inc. you need to determine the inventory costing method that will be used to record inventory transactions. Lynbrook began 2019 with 6,000 cases of paper. The cost of each case is $8. Merchandise transactions for the month of January 2019 are as follows:

Date of purchase. Cases. Cost/case. Total case

Jan 10. 10000. 9. 45000

Jan.18 6000. 10. 60000

Totals. 11000. 105000

Date of Sale. Cases

Jan 5 3000

Jan 12 2000

Jan 20 4000

Total 9000

8000 units were on hand at the en of the month

Required: 1. Calculate January's ending inventory and cost of goods sold for the month using each of the following alternatives (prepare your solution based on the format used in the Review Problem located on pages 330-332): A. FIFO, perpetual system B. LIFO, perpetual system C. Average cost, perpetual system (round to two decimals, if needed) 2. After your analysis, you recommended that Lynbrook use the LIFO inventory costing method. Prepare the journal entries to record the purchases and sales of inventory during January 2019.

Answer 1

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A FIFO
	Purchases/Beginning			Sale			Ending Inventory
Event	Quantity	Rate	Total	Quantity	Rate	Total	Quantity	Rate	Total
Beginning	6000	$                  8	$         48,000				6000	$             8	$   48,000
Jan 5				3000	$             8	$ 24,000	3000	$             8	$   24,000
Jan 10	5000	$                  9	$         45,000				3000	$             8	$   24,000
							5000	$             9	$   45,000
Jan 12				2000	$             8	$ 16,000	1000	$             8	$      8,000
							5000	$             9	$   45,000
Jan 18	6000	$               10	$         60,000				1000	$             8	$      8,000
							5000	$             9	$   45,000
							6000	$          10	$   60,000
Jan 20				1000	$             8	$    8,000	2000	$             9	$   18,000
				3000	$             9	$ 27,000	6000	$          10	$   60,000
Total	17000		$       153,000	9000		$ 75,000	8000		$   78,000
	Cost of Goods Sold	$       75,000
	Ending Inventory Value	$       78,000
B LIFO
	Purchases/Beginning			Sale			Ending Inventory
Event	Quantity	Rate	Total	Quantity	Rate	Total	Quantity	Rate	Total
Beginning	6000	$                  8	$         48,000				6000	$             8	$   48,000
Jan 5				3000	$             8	$ 24,000	3000	$             8	$   24,000
Jan 10	5000	$                  9	$         45,000				3000	$             8	$   24,000
							5000	$             9	$   45,000
Jan 12				2000	$             9	$ 18,000	3000	$             8	$   24,000
							3000	$             9	$   27,000
Jan 18	6000	$               10	$         60,000				3000	$             8	$   24,000
							3000	$             9	$   27,000
							6000	$          10	$   60,000
Jan 20				4000	$          10	$ 40,000	3000	$             8	$   24,000
							3000	$             9	$   27,000
							2000	$          10	$   20,000
Total	17000		$       153,000	9000		$ 82,000	8000		$   71,000
	Cost of Goods Sold	$       82,000
	Ending Inventory Value	$       71,000
C Average
	Purchases/Beginning			Sale			Ending Inventory
Event	Quantity	Rate	Total	Quantity	Rate	Total	Quantity	Rate	Total
Beginning	6000	$                  8	$         48,000				6000	$             8	$   48,000
Jan 5				3000	$             8	$ 24,000	3000	$             8	$   24,000
Jan 10	5000	$                  9	$         45,000				8000	$       8.63	$   69,000
Jan 12				2000	$       8.63	$ 17,250	6000	$       8.63	$   51,750
Jan 18	6000	$               10	$         60,000				12000	$       9.31	$ 111,750
Jan 20				4000	$          10	$ 40,000	8000	$       8.97	$   71,750
Total	17000		$       153,000	9000		$ 81,250	8000		$   71,750
	Cost of Goods Sold	$       81,250
	Ending Inventory Value	$       71,750
Requirement -2	Assuming Sales Price $15
Date	Account	Debit	Credit
Jan 5	Accounts Receivable	$       45,000		3000*15
Jan 5	Sales		$         45,000
Jan 5	Cost of Goods Sold	$       24,000		3000*8
Jan 5	Merchandise Inventory		$         24,000
Jan 10	Merchandise Inventory	$       45,000		5000*9
Jan 10	Accounts Payable		$         45,000
Jan 12	Accounts Receivable	$       30,000		2000*15
Jan 12	Sales		$         30,000
Jan 12	Cost of Goods Sold	$       18,000		2000*9
Jan 12	Merchandise Inventory		$         18,000
Jan 18	Merchandise Inventory	$       60,000		6000*10
Jan 18	Accounts Payable		$         60,000
Jan 20	Accounts Receivable	$       60,000		4000*15
Jan 20	Sales		$         60,000
Jan 20	Cost of Goods Sold	$       40,000		4000*10
Jan 20	Merchandise Inventory		$         40,000