Question

The beginning inventory at Midnight Supplies and data on purchases and sales for a three month period ending March 31 are as follows:

Date		Transaction	Number of Units	Per Unit	Total
Jan.	1	Inventory	2,500	$70.00	$175,000
	10	Purchase	8,000	78.00	624,000
	28	Sale	3,800	140.00	532,000
	30	Sale	1,250	140.00	175,000
Feb.	5	Sale	500	140.00	70,000
	10	Purchase	17,000	80.00	1,360,000
	16	Sale	9,100	145.00	1,319,500
	28	Sale	8,700	145.00	1,261,500
Mar.	5	Purchase	14,300	81.60	1,166,880
	14	Sale	9,800	145.00	1,421,000
	25	Purchase	3,000	82.00	246,000
	30	Sale	7,900	145.00	1,145,500

	Instructions
1.	Record the inventory, purchases, and cost of goods sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3 , using the first-in, first-out method.
2.	Determine the total sales and the total cost of goods sold for the period. Journalize the entries in the sales and cost of goods sold accounts. Assume that all sales were on account and date your journal entry March 31. Refer to the Chart of Accounts for exact wording of account titles.
3.	Determine the gross profit from sales for the period.
4.	Determine the ending inventory cost as of March 31.
5.	Based upon the preceding data, would you expect the ending inventory using the last-in, first-out method to be higher or lower? CHART OF ACCOUNTS Midnight Supplies General Ledger ASSETS 110 Cash 111 Petty Cash 120 Accounts Receivable 131 Notes Receivable 132 Interest Receivable 141 Inventory 145 Office Supplies 146 Store Supplies 151 Prepaid Insurance 181 Land 191 Office Equipment 192 Accumulated Depreciation-Office Equipment 193 Store Equipment 194 Accumulated Depreciation-Store Equipment LIABILITIES 210 Accounts Payable 221 Notes Payable 222 Interest Payable 231 Salaries Payable 241 Sales Tax Payable EQUITY 310 Common Stock 311 Retained Earnings 312 Dividends 313 Income Summary 1. Record the inventory, purchases, and cost of goods sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3 , using the first-in, first-out method. Under FIFO, if units are in inventory at two different costs, enter the units with the LOWER unit cost first in the Cost of Goods Sold Unit Cost column and in the Inventory Unit Cost column. Date Purchases Cost of Goods Sold Inventory Date Quantity Unit Cost Total Cost Quantity Unit Cost Total Cost Quantity Unit Cost Total Cost Jan. 1 10 10 28 28 30 Feb. 5 10 10 16 16 28 Mar. 5 5 14 14 25 25 30 30 31 Balances 2. Determine the total sales and the total cost of goods sold for the period. Journalize the entries in the sales and cost of goods sold accounts. Assume that all sales were on account and date your journal entry March 31. Refer to the Chart of Accounts for exact wording of account titles. PAGE 10 JOURNAL ACCOUNTING EQUATION DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY 1 2 3 4 REVENUE 410 Sales 610 Interest Revenue EXPENSES 510 Cost of Goods Sold 515 Credit Card Expense 516 Cash Short and Over 520 Salaries Expense 531 Advertising Expense 532 Delivery Expense 533 Insurance Expense 534 Office Supplies Expense 535 Rent Expense 536 Repairs Expense 537 Selling Expenses 538 Store Supplies Expense 561 Depreciation Expense-Office Equipment 562 Depreciation Expense-Store Equipment 590 Miscellaneous Expense 710 Interest Expense 3. Determine the gross profit from sales for the period. 4. Determine the ending inventory cost as of March 31. 5. Based upon the preceding data, would you expect the ending inventory using the last-in, first-out method to be higher or lower? Higher Lower

Answer 1

STATEMENT SHOWING INVENTORY RECORD UNDER PERPETUAL FIFO METHOD
	RECIEPTS			COST OF GOODS SOLD			BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
1-Jan							2500	70	175000
10-Jan	8000	78	624000				2500	70	175000
							8000	78	624000
28-Jan				2500	70	175000
				1300	78	101400	6700	78	522600
30-Jan				1250	78	97500	5450	78	425100
5-Feb				500	78	39000	4950	78	386100
10-Feb	17000	80	1360000				4950	78	386100
							17000	80	1360000
16-Feb				4950	78	386100
				4150	80	332000	12850	80	1028000
28-Feb				8700	80	696000	4150	80	332000
5-Mar	14300	81.6	1166880				4150	80	332000
							14300	81.6	1166880
14-Mar				4150	80	332000
				5650	81.6	461040	8650	81.6	705840
25-Mar	3000	82	246000				8650	81.6	705840
							3000	82	246000
30-Mar				7900	81.6	644640	750	81.6	61200
							3000	82	246000
TOTAL	42300		3396880	41050		3264680	3750		307200
Total sales (532000+175000+70000+1319500+1261500+1421000+1145500)							5924500
Journal entries
Date	Accounts title and explanations				Debit $	Credit $
a.	Accounts receivable Dr.				5924500
	Sales revenue					5924500
b.	Cost of goods sold Dr.				3264680
	Merchandise inventory					3264680
Req 3.
Sales revenue			5924500
Less: Cost of goods sold			3264680
Gross Profits			2659820
Req 4.
Ending inventory: $ 307200
Req 5.
Lower, the ending inventory will be lower is case of LIFO because of rising prices.