Question

Requirement 1. Determine the amounts that

MusicSchoolMusicSchool

should report for cost of goods sold and ending inventory two​ways: a. FIFO and b. LIFO.

​(MusicSchoolMusicSchool

uses a perpetual inventory​ system.)

a.

Using the FIFO method, the cost of goods sold is

$

and the ending inventory is

$

.

b.

Using the LIFO method, the cost of goods sold is

$

and the ending inventory is

$

.

Requirement 2.

MusicSchoolMusicSchool

uses the FIFO method. Prepare the​ company's income statement for the month ended

MarchMarch

​31,

20182018​,

reporting gross profit. Operating expenses totaled

$ 290$290​,

and the income tax rate was

35 %35%.

​(Round answers to the nearest​ dollar.)

MusicSchool

Income Statement

Month Ended March 31, 2018

		Net income

Date

Item

Quantity

Unit Cost

Sale Price

Mar

1

Balance. . . . . . . . . . .

18

$52

2

Purchase. . . . . . . . . .

3

59

7

Sale. . . . . . . . . . . . . . .

7

$105

13

Sale. . . . . . . . . . . . . . .

5

92

Answer 1

Solution:

Date	FIFO	QTY	Unit cost	QTY x Unit Cost	Unit Balance
01-Mar	Balance	18	52	18*52 = 936
02-Mar	Purchase	3	59	3*59 = 177
07-Mar	Sale	7	52	7*52 = 364	18+3-7 = 14
13-Mar	Sale	5	52	5*52 = 260	14-5 = 9
			FIFO COGS	364+260 = 624
Date	LIFO	QTY	Unit cost	Value	Unit Balance
01-Mar	Balance	18	52	18*52 = 936
02-Mar	Purchase	3	59	3*59 = 177
		3	59	3*59 = 177	18+3-3 = 18
		4	52	4*52 = 208	18-4= 14
07-Mar	Sale	7		385
13-Mar	Sale	5	52	5*52 = 260	14-5 = 9
			LIFO COGS	385+260 = 645
Income statement using FIFO Method
Sales (7*105)+(5*92)	1195
Less : Cogs	583
Gross profit	612
Less : Operating expense	290
PBT	322
Less :Tax @ 35%	112.7
Net Income	209.3