Question

XY merchandising has 20 coffee mugs in the beginning inventory at a cost of $5 per coffee mug . on february 1,2012 they purchase 10 coffee mugs on account (Each coffee mug cost $6). On februay 5,2012 they sell coffee mugs for $10 per coffee mug on account. The business uses first in first out.  prepare the entry XY merchandising would make to record the sale of february 5,2012.

a) debt: accounts receivable -$150

credit: revenue - $150 debit:

cost of goods sold-$85

credit: inventory -$85

b) debt: accounts receivable - $150

credit: revenue - $150

debt: cost of goods sold - $80

credit: inventory - $80

c) debt: accounts receivable - $150

credit: revenue - $150

debt: cost of goods sold - $75

credit: inventory - $75

d) no entries needed on february 5, 2012

Answer 1

Since in all total revenue in all options is $150 and the sales price of one coffee mug is $10, therefore total coffee mugs sold = 15 mugs

Now since the business uses first in first out method of inventory, all the 15 mugs would have been sold out of the opening balance of inventory which were purchase for $5 per mug.

Thus total cost of goods sold would be = $5 * 15 mugs = $75

Thus the journal entries would be:

Accounts	Debit	Credit
Accounts Receivable	$            150
Revenue		$            150
(to record sale of 15 mugs)
Cost of goods sold	$              75
Inventory		$              75
(to transfer the cost of goods sold from inventory ledger)

Thus answer would be (c)

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