Question

Exercise 8-9 Metlock Company sells one product. Presented below is information for January for Metlock Company. Jan. 1 Inventory 107 units at $5 each 4 Sale 84 units at $8 each 11 Purchase 146 units at $6 each 13 Sale 118 units at $9 each 20 Purchase 153 units at $7 each 27 Sale 89 units at $10 each Metlock uses the FIFO cost flow assumption. All purchases and sales are on account.

A) Compute gross profit using the periodic system.

B) Assume Metlock uses a perpetual system. Prepare all necessary journal entries.

C) Compute gross profit using the perpetual system.

Answer 1

A)

Calculation of cost of goods available for sale

Date	Description	Quantity	Rate	Value
Jan. 1	Beginning inventory	107	5	535
Jan 11	Purchase	146	6	876
Jan 20	Purchase	153	7	1,071
	Total			$2,482

Calculation of ending inventory

Date	Quantity	Rate	Value
Jan 20	115	7	$805

Cost of goods sold = Cost of goods available for sale - Ending inventory

= 2,482 - 805

= $1,677

Sales = 84 x 8 + 118 x 9 + 89 x 10

= 672 + 1,062 + 890

= $2,624

Gross profit = Sales - Cost of goods sold

= 2,624 - 1,677

= $947

(B)

Journal

Date	Account title	Debit	Credit
Jan. 4	Accounts receivable	672
	Sales		672
Jan. 4	Cost of goods sold	420
	Merchandise inventory		420
Jan. 13	Accounts receivable	1,062
	Sales		1,062
Jan 13	Cost of goods sold	685
	Merchandise inventory		685
Jan. 27	Accounts receivable	890
	Sales		890
Jan. 27	Cost of goods sold	572
	Merchandise inventory		572

(C)

Gross profit will not change when perpetual inventory system is used if FIFO cost flow assumption is used. Hence, under perpetual system it will be $947

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