Question

In: Accounting

In its first month of operations, Literacy for the Illiterate opened a new bookstore and bought...

In its first month of operations, Literacy for the Illiterate opened a new bookstore and bought merchandise in the following order: (1) 400 units at $6 on January 1, (2) 600 units at $8 on January 8, and (3) 870 units at $9 on January 29. Assume 1,070 units are on hand at the end of the month.

Calculate the cost of goods available for sale, cost of goods sold, and ending inventory under the (a) FIFO, (b) LIFO, and (c) weighted average cost flow assumptions. Assume perpetual inventory system and sold 800 units between January 9 and January 28. (Round your intermediate calculations to 2 decimal places.)

FIFO LIFO Weighted Average Cost
Goods Available for Sale
Cost of Goods Sold
Ending Inventory

Solutions

Expert Solution

1. FIFO

Transaction

Closing balance

Date

Particulars

Units

Price

Value

Units

Price

Value

Jan-01

Purchase

400

6

2400

400

6

2400

Jan-08

Purchase

600

8

4800

1000

7.20
(7200/1000)

7200

B/w Jan 09 and Jan 28

Sale

800

400 @ 6
400 @ 8

5600

200

8

1600

Jan-29

Purchase

870

                9

7830

1070

200 @ 8
870 @ 9

9430

Goods available for sale as on Jan 09 = 1000 units (400 @ $6 and 600 @ $8) of $ 7200

Cost of goods sold = $5600 (400 @ $6 and 400 @ $8)

Ending inventory = 1070 units (200 @ $8 and 800 @ $9) of $ 9430

2. LIFO

Transaction

Closing balance

Date

Particulars

Units

Price

Value

Units

Price

Value

Jan-01

Purchase

400

6

2400

400

6

2400

Jan-08

Purchase

600

8

4800

1000

400 @ 6
600 @ 8

7200

B/w Jan 09 and Jan 28

Sale

800

600 @ 8
200 @ 6

6000

200

6

1200

Jan-29

Purchase

870

                9

7830

1070

200 @ 6
870 @ 9

9030

Goods available for sale as on Jan 09 = 1000 units (400 @ $6 and 600 @ $8) of $ 7200

Cost of goods sold = $6000 (600 @ $8 and 200 @ $6)

Ending inventory = 1070 units (200 @ $6 and 800 @ $9) of $ 9030

3. Weighted average cost method

Transaction

Closing balance

Date

Particulars

Units

Price

Value

Units

Price

Value

Jan-01

Purchase

400

6

2400

400

6

2400

Jan-08

Purchase

600

8

4800

1000

7.20
(7200/1000)

7200

B/w Jan 09 and Jan 28

Sale

800

          7.20

5760

200

7.20

1440

Jan-29

Purchase

870

                9

7830

1070

8.66
(9270/1070)

9270

Goods available for sale as on Jan 09 = 1000 units @7.20 per unit = $ 7200

Cost of goods sold = $5760 (800 units @ 7.20 per unit)

Ending inventory = 1070 units $9270 value


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