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	7,500	$ 75.00	$ 562,500
	10	Purchase	22,500	85.00	1,912,500
	28	Sale	11,250	150.00	1,687,500
	30	Sale	3,750	150.00	562,500
Feb.	5	Sale	1,500	150.00	225,000
	10	Purchase	54,000	87.50	4,725,000
	16	Sale	27,000	160.00	4,320,000
	28	Sale	25,500	160.00	4,080,000
Mar.	5	Purchase	45,000	89.50	4,027,500
	14	Sale	30,000	160.00	4,800,000
	25	Purchase	7,500	90.00	675,000
	30	Sale	26,250	160.00	4,200,000

	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
ASSETS110Cash111Petty Cash120Accounts Receivable131Notes Receivable132Interest Receivable141Inventory145Office Supplies146Store Supplies151Prepaid Insurance181Land191Office Equipment192Accumulated Depreciation-Office Equipment193Store Equipment194Accumulated Depreciation-Store EquipmentLIABILITIES210Accounts Payable221Notes Payable222Interest Payable231Salaries Payable241Sales Tax PayableEQUITY310Common Stock311Retained Earnings312Dividends313Income Summary	REVENUE410Sales610Interest RevenueEXPENSES510Cost of Goods Sold515Credit Card Expense516Cash Short and Over520Salaries Expense531Advertising Expense532Delivery Expense533Insurance Expense534Office Supplies Expense535Rent Expense536Repairs Expense537Selling Expenses538Store Supplies Expense561Depreciation Expense-Office Equipment562Depreciation Expense-Store Equipment590Miscellaneous Expense710Interest Expense

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

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?

Answer 1

Ans. 1	MIDNIGHT SUPPLIES
	Schedule of Cost of Merchandise Sold
	FIFO Method
	For the three - months ended March 31
	Purchase				Cost of merchandise sold			Balance
	Date	Quantity	Unit cost	Total cost	Quantity	Unit cost	Total cost	Quantity	Unit cost	Total cost
	1-Jan	7500	$75.00	$562,500				7500	$75.00	$562,500
	10-Jan	22500	$85.00	$1,912,500				7500	$75.00	$562,500
								22500	$85.00	$1,912,500
	28-Jan				7500	$75.00	$562,500
					3750	$85.00	$318,750	18750	$85.00	$1,593,750
	30-Jan				3750	$85.00	$318,750	15000	$85.00	$1,275,000
	5-Feb				1500	$85.00	$127,500	13500	$85.00	$1,147,500
	10-Feb	54000	$87.50	$4,725,000				13500	$85.00	$1,147,500
								54000	$87.50	$4,725,000
	16-Feb				13500	$85.00	$1,147,500
					13500	$87.50	$1,181,250	40500	$87.50	$3,543,750
	28-Feb				25500	$87.50	$2,231,250	15000	$87.50	$1,312,500
	5-Mar	45000	$89.50	$4,027,500				15000	$87.50	$1,312,500
								45000	$89.50	$4,027,500
	14-Mar				15000	$87.50	$1,312,500
					15000	$89.50	$1,342,500	30000	$89.50	$2,685,000
	25-Mar	7500	$90.00	$675,000				30000	$89.50	$2,685,000
								7500	$90.00	$675,000
	30-Mar				26250	$89.50	$2,349,375	3750	$89.50	$335,625
								7500	$90.00	$675,000
	Total				Cost of goods sold		$10,891,875	Ending inventory		$1,010,625
	*In FIFO method the units that have purchased first, are released the first one and the ending inventory
	units remain from the last purchases.
Ans. 2	General Journal		Debit	Credit
	Accounts receivable		$19,875,000
	Sales			$19,875,000
	(Total sales recorded)
	Cost of merchandise sold		$10,891,875
	Merchandise inventory			$10,891,875
	(Total cost of merchandise sold)
	*Calculation of sales:
	Date	Units	Rate	Total
	28-Jan	11250	$150.00	$1,687,500
	30-Jan	3750	$150.00	$562,500
	5-Feb	1500	$150.00	$225,000
	16-Feb	27000	$160.00	$4,320,000
	28-Feb	25500	$160.00	$4,080,000
	14-Mar	30000	$160.00	$4,800,000
	30-Mar	26250	$160.00	$4,200,000
	Total sales			$19,875,000