Question

The following information for Dorado Corporation relates to the three-month period ending September 30.

		Units		Price per Unit
Sales		520,000		$	55
Beginning inventory		54,000			37
Purchases		495,000			43
Ending inventory		29,000			?

Dorado expects to purchase 245,000 units of inventory in the fourth quarter of the current calendar year at a cost of $44 per unit, and to have on hand 83,000 units of inventory at year-end. Dorado uses the last-in, first-out (LIFO) method to account for inventory costs.

A.Determine the cost of goods sold and gross profit amounts Dorado should record for the three months ending September 30.

B.Prepare journal entries to reflect these amounts.

Answer 1

	a)
	Calculation of Cost of Goods Sold as per LIFO
	Beginning Inventory			=54000*37		$         19,98,000
	Purchases			=495000*43		$     2,12,85,000
	Cost of Goods Available for Sale					$     2,32,83,000
	Less Closing Inventory			=29000*37		$         10,73,000
	Cost of Goods Sold					$     2,22,10,000
	Note: Closing Inventory consists of goods from beginning inventory as all units purchased were sold as per LIFO.
	Calculation of Gross Profit on Sales
	Sales			=520000*55		$     2,86,00,000
	Less Cost of goods sold					$     2,22,10,000
	Gross Profit					$ 63,90,000
	b)
	Date	Accounts and Explanations				Dr Amount	Cr Amount
	30-Sep	(Closing)Inventory A/c				$ 10,73,000
		Cost of Goods Sold A/c				$     2,22,10,000
			To (Beginning)Inventory A/c				$     19,98,000
			To Purchases A/c				$ 2,12,85,000
		(to record Closing Inventory and Cost of Goods Sold)