Question

EFG Industries began operations with no beginning inventory on 10/1/2020. EFG adopted a Periodic inventory system and a FIFO cost flow assumption.
The following events occurred:
10/1/2020 Purchased 100 units @ $10/unit
10/15/2020 Returned 10 units for full refund
10/30/2020 Sold 60 units @ $14/unit FOB Shipping Point (shipped same day)
11/15/2020 Purchased 200 units @ $12/unit
11/18/2020 Sold 210 units @ $15/unit FOB Destination (arrived at customer 12/15)
12/12/2020 Purchased 100 units @ $14/unit
12/18/2020 Obtained $50 discount on 12/12 purchase
12/30/2020 Sold 50 units @ $16 FOB Destination (in transit at year end)
Based on this information,
1. What is the value of Ending Inventory?
2. What is the value of Cost of Goods Sold?
3. Prepare the adjusting journal enties that would be used to record Cost of Goods Sold on 12/31/2020.

Answer 1

Answer to Question No. 1

Date	Particulars	Opening balance	Purchase cost in $	Cost of goods sold or issued in $	Closing balance
10/1/2020	Purchased 100 units @ $10/unit	0	$1,000	0	$1,000 (100 units @ $10/unit)
10/15/2020	Returned 10 units @ $10/unit	$1,000	0	$100	$900 (90 units @ $10/unit)
10/30/2020	Sold 60 units @ $14/unit	$900	0	$600 (60 units @ $10/unit)	$300 (30 units @ $10/unit)
11/15/2020	Purchased 200 units @ $12/unit	$300	$2,400	0	$2,700 (30 units @ $10/unit & 200 units @ $12/unit)
11/18/2020	Sold 210 units @ $15/unit	$2,700	0	$2,460 (30 units @ $10/unit &180 units @ $12/unit)	$240 (20 units @ $12/unit)
12/12/2020	Purchased 100 units @ $14/unit	$240	$1,400	0	$1,640 (20 units @ $12/unit & 100 units @ $14/unit)
12/18/2020	Obtained $50 discount on 12/12 purchase	$1,640	($50)	0	$1,590 (20 units @ $12/unit & 100 units @ $13.50/unit) ($50 discount per unit is $0.50)
12/30/2020	Sold 50 units @ $16/unit	$1,590	0	$645 (20 units @ $12/unit & 30 units @ $13.50/unit)	$945 (70 units @ $13.50/unit)

Note: As per FIFO method, goods came in first will go out first. The distribution of units in the above table is based on this method.

The ending inventory as at 12/31/2020 is $945 (70 units @ $13.50/unit)

Answer to Question No. 2

Cost of goods sold or issued as per above table = $100 + $600 + $2,460 + $645 = $3,805

Less: Cost of goods returned (10 units @ $10/unit)                                                     = ($100)

Cost of goods sold =                                                                                                            = $3,705

Note: The sale transaction on 12/30/2020 is FOB destination transaction and is currently in transit. Since the goods has left the premises we can record it as COGS.

Answer to Question No. 3

                                                                           Journal Entries

Date	Particulars	Debit $	Credit $
12/31/2020	Cost of Goods Sold Expense A/c	$3,705
	Purchases A/c		$3,705

Note: Cost of Goods Sold = Opening Inventory + Purchases – Closing Inventory