Question

On May 1, Black Bear Company had 400 units of inventory on hand, at a cost of $4.00 each. The company uses a perpetual inventory system. All purchases and sales are on account. A record of inventory transactions for the month of May for the company is as follows: Purchases Sales 300@ $7.00 1,000 @ $7.00 400 @ $7.50 May 4 May 3 1,300@ $4.10 700 @ $4.40 14 16 29 500@ $4.75 18 Instructions a. Calculate the cost of goods sold and ending inventory using FIFO. b. Prepare journal entries to record the May 4 purchase and the May 3 and 16 sales. c. Calculate gross profit for May

Answer 1

(a).Calculation of cost of good sold and ending inventory of Arrow Company:
Under FIFO Method
DATE	PURCHASED		COGS			INVENTORY
May	units	cost per unit	unit	cost per unit	COGS	units	cost per unit	inventory
1-May						400	4	1600
3-May			300	4	1200	100	4	400
4-May	1300	4.1				100	4	400
						1300	4.1	5330
14-May	700	4.4				100	4	400
						1300	4.1	5330
						700	4.4	3080
16-May			100	4	400	400	4.1	1640
			900	4.1	3690	700	4.4	3080
18-May			400	4.1	1640	700	4.4	3080
29-May	500	4.75				700	4.4	3080
						500	4.75	2375
Total			1700		6930	1200		5455

Cost of good sold= $6930
Inventory = $ 5455

(b).
Answer:
	Journal entries:
Date	Particulars	Dr	Cr
		$	$
3-May	Account receivable a/c                           Dr	2100
	sales a/c		2100
	(Being sales made on credit @ $7 per unit)
3-May	Cost of good sold a/c                               Dr	1200
	Merchandise inventory a/c		1200
	(Being sales made which cost @$4 per unit)
4-May	Purchase a/c   (Merchandise inventory)      Dr	5330
	Account payable a/c		5330
	(Being urchase made on credit)
16-May	Account receivable a/c                           Dr	7000
	sales a/c		7000
	(Being sales made on credit @ $7 per unit)
16-May	Cost of good sold a/c                               Dr	4090
	Merchandise inventory a/c		4090
	(Being sales made which cost @$4 per unit for 100 units ,$4.1 per unit for 900 units)

( c ).
Calculation of Gross profit:
	$	$
Sales -MAY 3 - (300 units @ $7)	2100
May 16 -(1000 units @$7)	7000
May 18 - (400 units @ $7.5)	3000	12100
Less: Cost of good sold under FIFO method		6930
Gross profit		5170