Question

FIFO Perpetual Inventory The beginning inventory at Dunne Co. and data on purchases and sales for a three-month period ending June 30 are as follows: Date Transaction Number of Units Per Unit Total Apr. 3 Inventory 42 $525 $22,050 8 Purchase 84 630 52,920 11 Sale 56 1,750 98,000 30 Sale 35 1,750 61,250 May 8 Purchase 70 700 49,000 10 Sale 42 1,750 73,500 19 Sale 21 1,750 36,750 28 Purchase 70 770 53,900 June 5 Sale 42 1,840 77,280 16 Sale 56 1,840 103,040 21 Purchase 126 840 105,840 28 Sale 63 1,840 115,920 Required: 1. Record the inventory, purchases, and cost of merchandise 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. Dunne Co. Schedule of Cost of Goods Sold FIFO Method For the Three Months Ended June 30 Purchases Cost of Goods Sold Inventory Date Quantity Unit Cost Total Cost Quantity Unit Cost Total Cost Quantity Unit Cost Total Cost Apr. 3 $ $ Apr. 8 $ $ Apr. 11 $ $ Apr. 30 May 8 May 10 May 19 May 28 June 5 June 16 June 21 June 28 June 30 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. Record sale Record cost 3. Determine the gross profit from sales for the period. $ 4. Determine the ending inventory cost as of June 30. $ 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

1.

Dunne Co.
Schedule of Cost of Merchandise Sold
FIFO Method
	Purchases			Cost of Merchandise Sold			Inventory
Date	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost
Apr. 3							42	$525	$22050
Apr. 8	84	$630	$52920				42	525	22050
							84	630	52920
Apr. 11				42	$525	$22050
				14	630	8820	70	630	44100
Apr. 30				35	630	22050	35	630	22050
May 8	70	700	49000				35	630	22050
							70	700	49000
May 10				35	630	22050
				7	700	4900	63	700	44100
May 19				21	700	14700	42	700	29400
May 28	70	770	53900				42	700	29400
							70	770	53900
June 5				42	700	29400	70	770	53900
June 16				56	770	43120	14	770	10780
June 21	126	840	105840				14	770	10780
							126	840	105840
June 28				14	770	10780
				49	840	41160	77	840	64680
June 30	Balances					$219030			$64680

2.

Record sale	Accounts receivable	$565740
	Sales		$565740
	(To record sales on account)
Record cost	Cost of goods sold	$219030
	Merchandise inventory		$219030
	(To record cost of goods sold)

Sales= April 11+April 30+May 10+May 19+June 5+June 16+June 28

= $98000+61250+73500+36750+77280+103040+115920

= $565740

3. Determine the gross profit from sales for the period.
Gross profit= Sales-Cost of goods sold

= $565740-219030= $346710

4. Determine the ending inventory cost as of June 30.
Ending inventory= 77*$840= $64680

5. Based upon the preceding data, would you expect the inventory using the last-in, first-out method to be higher or lower?

When the company uses last-in, first-out method, that means those inventories which are purchased lastly will be sold first and in the given case we can say that the unit price are rising and if the company uses the LIFO method those inventories which are purchased at higher rate will be sold earlier, so the remaining inventory left must be at the lower prices. Hence, the inventory using last-in, first-out method would be lower.