Question

Kayla Company uses the perpetual inventory system and the LIFO method. The following information is available for the month of June:


June 1 Beginning inventory 200 units @ $5
12 Purchase on account 400 units @ $6
15 Sales on account 440 units
23 Purchase on account 300 units @ $7
27 Sales on account 360 units
The selling price (price the company charged the customers) was $10 per unit.

a) Show the calculation of cost of goods sold and ending inventory under LIFO.

b) What is the amount of Sales Revenue?

c) Prepare a journal entry for the sale of inventory on June 15.

d) In which financial statement does the amount of ending inventory appear?

e) In which financial statement do the amount of sales and amount of cost of goods sold appear?

f) What is the amount of gross margin for month June?

g) What is the gross margin percentage?

Answer 1

Solution:

a)

LIFO	Cost of goods available for sale	Cost of Goods sold	Ending Inventory
	# of units	Cost per unit	Cost of goods Available for sales	# of units sold	Cost per unit	Cost of goods sold	# of units	Cos per Unit	Ending Inventory
Beginning inventory							200	5	1000
Jun-12	400	6	2400				200	5	1000
							400	6	2400
Jun-15				40	5	200	160	5	800
				400	6	2400	0	6	0
Jun-23	300	7	2100				160	5	800
							0	6	0
							300	7	2100
Jun-27				60	5	300	100	5	500
				300	7	2100	0	7	0
Total				800		5000	100		500

Cost of goods sold = 5000

Ending inventory = 500

b)

sales revenue = (440 + 360) x 10 = 8000

c)

Date	Accounts titles and explanation	Debit	Credit
June 15	Accounts receivable a/c Dr	4400
	To sales revenue a/c		4400
	(To record the sales)
June 15	Cost of goods sold a/c Dr (200 + 2400)	2600
	To merchandise inventory a/c		2600
	(To reord the cost of sales on june 15)

d)

The amount of ending inventory appears on the balancesheet

e)

The amount of cost of goods sold and ending inventory appears on the income statement

f)

Gross profit = sales revenue - cost of goods sold = 8000 - 5000 = 3000

g)

Gross margin percentage = (gross profit / sales) x 100 = (3000 /8000) x 100 = 37.5