Question

ohnson Corporation began 2018 with inventory of 17,000 units of its only product. The units cost $9 each. The company uses a periodic inventory system and the LIFO cost method. The following transactions occurred during 2018:

Purchased 85,000 additional units at a cost of $10 per unit. Terms of the purchases were 2/10, n/30, and 100% of the purchases were paid for within the 10-day discount period. The company uses the gross method to record purchase discounts. The merchandise was purchased f.o.b. shipping point and freight charges of $0.40 per unit were paid by Johnson.

1,700 units purchased during the year were returned to suppliers for credit. Johnson was also given credit for the freight charges of $0.40 per unit it had paid on the original purchase. The units were defective and were returned two days after they were received.

Sales for the year totaled 80,000 units at $18 per unit.

On December 28, 2018, Johnson purchased 5,700 additional units at $10 each. The goods were shipped f.o.b. destination and arrived at Johnson's warehouse on January 4, 2019.

20,300 units were on hand at the end of 2018.

Required:
1. Complete the below table to determine the ending inventory and cost of goods sold for 2018.
2. Assuming that operating expenses other than those indicated in the above transactions amounted to $164,000, determine income before income taxes for 2018.

Answer 1

1) Value of Ending Inventory

a. Opening inventory 17000 units @$9 = $ 153000

b. Purchases = 85000untis

Less Returns = (1700)units

Net = 83300units

Purchase price = $10

Discount @ 2% = $ 0.2

Effective purchase price = $ 9.8

So purchases = 83300units × $ 9.8 per unit = $ 816340

Given Closing inventory = 20300 units

Since Corp follows LIFO inventory valuation methoth, the value calculated is as below

out of the above 3300 units valued @ $9.8 per unit = $ 32340

balance 17000 units valued @ $ 9 per unit = $ 153000

Ending Inventory = $ 32340 + $ 153000 = $ 185340

ENDING INVENTORY = $ 185340

COST OF GOODS SOLD = Opeaning inventory + purchases(net) + freight + Closing inventory

( freight = 83300units ×$ 0.4per unit = $ 33320)

= $ 153000 + $ 816340 - $ 185340

= $ 784000

COST OF GOODS SOLD = $ 784000

2) INCOME STATEMENT

Sales( 80000 × 18 ) = $ 1440000

Add: Closing Inventory = $ 185340

Less Opening inventory = $ 153000

Less Purchases = $ 816340

Less: Freight = $ 33320

GROSS INCOME = $ 622680

Add: Discount Received = $ 16660

( 83300units × $0.2)  

Less: other Operating  

expenses( given) = $ 164000

NET INCOME = $ 475340