Question

The Shirt Shop had the following transactions for T-shirts for 2016, its first year of operations:

   

Jan. 20	Purchased	460 units @ $8	=	$	3,680
Apr. 21	Purchased	260 units @ $10	=		2,600
July 25	Purchased	340 units @ $13	=		4,420
Sept. 19	Purchased	150 units @ $15	=		2,250

   

During the year, The Shirt Shop sold 990 T-shirts for $24 each.

Required

a.		Compute the amount of ending inventory The Shirt Shop would report on the balance sheet, assuming the following cost flow assumptions: (1) FIFO, (2) LIFO, and (3) weighted average. (Round cost per unit to 2 decimal places and final answers to the nearest whole dollar amount.)
	Ending Inventory FIFO LIFO Weighted Average

b.

Record the above transactions in general journal form and post to T-accounts using (1) FIFO, (2) LIFO, and (3) weighted average. Use a separate set of journal entries and T-accounts for each method. Assume all transactions are cash transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

event 1: record the entry for purchase of inventory for cash on January 20

event 2: record the entry for purchase of inventory for cash on april 21

event 3: record the entry for purchase of inventory for cash on july 25

event 4: record the entry for purchase of inventory for cash on September 19

FIFO Sales and Cost of goods sold

Event 1: record the sale of inventory for cash

Event 2: Record entry for cost of goods sold

LIFO Sales and Cost of goods sold

Event 1: Record sale of inventory for cash

Event 2: Record entry for cost of goods sold

Weighted average Sales and Cost of goods sold

Event 1: record the sale of inventory for cash

Event 2: Record entry for cost of goods sold

1.		FIFO
	Cash Merchandise Inventory Beg. Bal Beg. Bal End. Bal Sales Revenue Cost of Goods Sold Beg. Bal Beg. Bal End. Bal End. Bal

2. LIFO

	Cash Merchandise Inventory Beg. Bal Beg. Bal End. Bal Sales Revenue Cost of Goods Sold Beg. Bal Beg. Bal End. Bal End. Bal

3.Weighted Average

	Cash Merchandise Inventory Beg. Bal Beg. Bal End. Bal Sales Revenue Cost of Goods Sold Beg. Bal Beg. Bal End. Bal End. Bal

c.	Compute the difference in gross margin between the FIFO and LIFO cost flow assumptions.

	Difference in gross margin between the FIFO and LIFO cost flow assumptions

Answer 1

a		FIFO Method
		In FIFO the goods which are purchased first are sold first
		990 T-shirts are sold from the following purchases
		Units	Rate	Cost of Goods Sold
	20-Jan	460	8	3680
	21-Apr	260	10	2600
	25-Jul	270	13	3510
	Total	990		9790
		Total Purchases = 460+260+340+150				1210
		Sales				990
		Ending Inventory				220
		Value of Ending Inventory
		Units	Rate
	25-Jul	70	13	910
	19-Sep	150	15	2250
	Total			3160
		LIFO Method
		990 T-shirts are sold from the following purchases
		Units	Rate	Cost of Goods Sold
	19-Sep	150	15	2250
	25-Jul	340	13	4420
	21-Apr	260	10	2600
	20-Jan	240	8	1920
	Total	990		11190
		Total Purchases = 460+260+340+150				1210
		Sales				990
		Ending Inventory				220
		Value of Ending Inventory
		Units	Rate
	20-Jan	220	8	1760
		Weighted Average
		990 T-shirts are sold from the following purchases
		Weighted Average unit cost - (3680+2600+4420+2250)/(460+260+340+150)					10.70
		Cost of Goods Sold - 990*10.70					10593
		Ending Inventory - 220*10.70					2354
	b	Date	Transaction	Debit	Credit
		20-Jan	Merchandise Inventory	$3,680
			To Cash		$3,680
			(Being inventory purchase on cash)
		21-Apr	Merchandise Inventory	$2,600
			To Cash		$2,600
			(Being inventory purchase on cash)
		25-Jul	Merchandise Inventory	$4,420
			To Cash		$4,420
			(Being inventory purchase on cash)
		19-Sep	Merchandise Inventory	$2,250
			To Cash		$2,250
			(Being inventory purchase on cash)
			Cash	23760
			To Sales		23760
			(Being FIFO sales recorded)
			Cost of Goods Sold	9790
			To Merchandise Inventory		9790
			(Being cost of goods recorded on FIFO basis)
			Cash	23760
			To Sales		23760
			(Being LIFO sales recorded)
			Cost of Goods Sold	11190
			To Merchandise Inventory		11190
			(Being cost of goods recorded on LIFO basis)
			Cash	23760
			To Sales		23760
			(Being LIFO sales recorded)
			Cost of Goods Sold	10593
			To Merchandise Inventory		10593
			(Being cost of goods recorded on weighted average basis)
		1	FIFO
			Cash					Merchandise Inventory
			Beg Bal	0	Event 1	$3,680		Event 1	3680	Cost of Goods Sold	9790
					Event 2	$2,600		Event 2	2600
					Event 3	$4,420		Event 3	4420
			Sales	23760	Event 4	$2,250		Event 4	2250	End Inventory	3160
			End Bal			10810
				23760		$23,760			12950		12950
			Sales revenue					Cost of Goods Sold
					Cash	$23,760		Merchandise Inventory	9790		9790
			End Bal	$23,760
				$23,760		$23,760			9790		9790
		2	LIFO
			Cash					Merchandise Inventory
			Beg Bal	0	Event 1	3680		Event 1	3680	Cost of Goods Sold	11190
					Event 2	2600		Event 2	2600
					Event 3	4420		Event 3	4420
			Sales	23760	Event 4	2250		Event 4	2250	End Inventory	1760
			End Bal			10810
				23760		23760			12950		12950	0
			Sales revenue					Cost of Goods Sold
					Cash	23760		Merchandise Inventory	11190		11190
			End Bal	23760
				23760		23760			11190		11190
			Weighted Average
			Cash					Merchandise Inventory
			Beg Bal	0	Event 1	3680		Purchases	12947	Cost of Goods Sold	10593
					Event 2	2600				Ending Inventory	2354
					Event 3	4420
			Sales	23760	Event 4	2250
			End Bal			10810
				23760		23760			12947		12947
			Sales revenue					Cost of Goods Sold
					Cash	23760		Merchandise Inventory	10593	End Bal	10593
			End Bal	23760
				23760		23760			10593		10593
			Gross Margin		FIFO	LIFO
			Sales		23760	23760
			Less : Cost of Goods Sold		9790	11190
			Gross Margin		13970	12570
			Difference in Gross Margin	13970-12570		1400