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The beginning inventory at Midnight Supplies and data on purchases and sales for a three month...

The beginning inventory at Midnight Supplies and data on purchases and sales for a three month period ending March 31 are as follows: Date Transaction Number of Units Per Unit Total Jan. 1 Inventory 7,500 $ 75.00 $ 562,500 10 Purchase 22,500 85.00 1,912,500 28 Sale 11,250 150.00 1,687,500 30 Sale 3,750 150.00 562,500 Feb. 5 Sale 1,500 150.00 225,000 10 Purchase 54,000 87.50 4,725,000 16 Sale 27,000 160.00 4,320,000 28 Sale 25,500 160.00 4,080,000 Mar. 5 Purchase 45,000 89.50 4,027,500 14 Sale 30,000 160.00 4,800,000 25 Purchase 7,500 90.00 675,000 30 Sale 26,250 160.00 4,200,000 Instructions 1. Record the inventory, purchases, and cost of goods sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3, using the first-in, first-out method. 2. Determine the total sales and the total cost of goods sold for the period. Journalize the entries in the sales and cost of goods sold accounts. Assume that all sales were on account and date your journal entry March 31. Refer to the Chart of Accounts for exact wording of account titles. 3. Determine the gross profit from sales for the period. 4. Determine the ending inventory cost as of March 31. 5. Based upon the preceding data, would you expect the ending inventory using the last-in, first-out method to be higher or lower?

Solutions

Expert Solution

Solution 1:

Computation of ending inventory COGS under FIFO - Midnight supplies
Date Beginning Inventory Purchase Cost of Goods Sold Ending Inventory
Qty Rate Amount Qty Rate Amount Qty Rate Amount Qty Rate Amount
1-Jan 7500 $75.00 $562,500.00 0 $0.00 $0.00 0 $0.00 $0.00 7500 $75.00 $562,500.00
10-Jan 7500 $75.00 $562,500.00 22500 $85.00 $1,912,500.00 0 $0.00 $0.00 7500 $75.00 $562,500.00
22500 $85.00 $1,912,500.00
28-Jan 7500 $75.00 $562,500.00 0 $0.00 $0.00 7500 $75.00 $562,500.00 18750 $85.00 $1,593,750.00
22500 $85.00 $1,912,500.00 3750 $85.00 $318,750.00
30-Jan 18750 $85.00 $1,593,750.00 0 $0.00 $0.00 3750 $85.00 $318,750.00 15000 $85.00 $1,275,000.00
5-Feb 15000 $85.00 $1,275,000.00 0 $0.00 $0.00 1500 $85.00 $127,500.00 13500 $85.00 $1,147,500.00
10-Feb 13500 $85.00 $1,147,500.00 54000 $87.50 $4,725,000.00 0 $0.00 $0.00 13500 $85.00 $1,147,500.00
54000 $87.50 $4,725,000.00
16-Feb 13500 $85.00 $1,147,500.00 0 $0.00 $0.00 13500 $85.00 $1,147,500.00 40500 $87.50 $3,543,750.00
54000 $87.50 $4,725,000.00 13500 $87.50 $1,181,250.00
28-Feb 40500 $87.50 $3,543,750.00 0 $0.00 $0.00 25500 $87.50 $2,231,250.00 15000 $87.50 $1,312,500.00
5-Mar 15000 $87.50 $1,312,500.00 45000 $89.50 $4,027,500.00 0 $0.00 $0.00 15000 $87.50 $1,312,500.00
45000 $89.50 $4,027,500.00
14-Mar 15000 $87.50 $1,312,500.00 0 $0.00 $0.00 15000 $87.50 $1,312,500.00 30000 $89.50 $2,685,000.00
45000 $89.50 $4,027,500.00 15000 $89.50 $1,342,500.00
25-Mar 30000 $89.50 $2,685,000.00 7500 $90.00 $675,000.00 0 $0.00 $0.00 30000 $89.50 $2,685,000.00
7500 $90.00 $675,000.00
30-Mar 30000 $89.50 $2,685,000.00 0 $0.00 $0.00 26250 $89.50 $2,349,375.00 3750 $89.50 $335,625.00
7500 $90.00 $675,000.00 7500 $90.00 $675,000.00
Total $10,891,875.00 $1,010,625.00

Solution 2:

Computation of Sales
Date Sales Qty Selling Price Sale Value
28-Jan 11250 $150.00 $1,687,500.00
30-Jan 3750 $150.00 $562,500.00
5-Feb 1500 $150.00 $225,000.00
16-Feb 27000 $160.00 $4,320,000.00
28-Feb 25500 $160.00 $4,080,000.00
14-Mar 30000 $160.00 $4,800,000.00
30-Mar 26250 $160.00 $4,200,000.00
Total 125250 $19,875,000.00

Refer table in part 1, cost of goods sold = $10,891,875

Journal Entries
Particulars Debit Credit
Accounts Receivables Dr $19,875,000.00
            To Sale Revenue $19,875,000.00
(Being sales recorded for the quarter)
Cost of merchandise sold Dr $10,891,875.00
            To Inventory $10,891,875.00
(Being inventories sold transferred to cost of merchandise sold account)

Solution 4:

Gross profit = Sales - COGS = $19,875,000 - $10,891,875 = $8,983,125

Solution 5:

As price are increasing in nature, therefore, ending inventory using LIFO will be lower than FIFO method.


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