Question

1. The beginning inventory of merchandise at Dunne Co. and data on purchases and sales for a three-month period ending June 30 are as follows:
   

   Date	Transaction	Number of Units		Per Unit		Total
   Apr. 3	Inventory	25		$1,200		$30,000
   8	Purchase	75		1,240		93,000
   11	Sale	40		2,000		80,000
   30	Sale	30		2,000		60,000
   May 8	Purchase	60		1,260		75,600
   10	Sale	50		2,000		100,000
   19	Sale	20		2,000		40,000
   28	Purchase	80		1,260		100,800
   June 5	Sale	40		2,250		90,000
   16	Sale	25		2,250		56,250
   21	Purchase	35		1,264		44,240
   28	Sale	44		2,250		99,000

   Required:

   1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3, using the first-in, first-out method. Under FIFO, if units are in inventory at two different costs, enter the units with the LOWER unit cost first in the Cost of Merchandise Sold Unit Cost column and in the Inventory Unit Cost column.

   Dunne Co. Schedule of Cost of Merchandise Sold FIFO Method For a Three-Month Period
   	Purchases			Cost of Merchandise Sold			Inventory
   Date	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost
   Apr. 3								$	$
   Apr. 8		$	$
   Apr. 11					$	$
   Apr. 30
   May 8
   May 10
   May 19
   May 28
   June 5
   June 16
   June 21
   June 28
   June 30	Balances					$			$

   2. Determine the total sales and the total cost of merchandise sold for the period. Journalize the entries in the sales and cost of merchandise sold accounts. Assume that all sales were on account.

   Record sale	Accounts Payable Accounts Receivable Cash Merchandise Inventory Sales
   	Accounts Payable Accounts Receivable Cash Cost of Merchandise Sold Sales
   Record cost	Accounts Payable Cash Cost of Merchandise Sold Merchandise Inventory Sales
   	Accounts Payable Accounts Receivable Cash Cost of Merchandise Sold Merchandise Inventory

   3. Determine the gross profit from sales for the period.
   $

   4. Determine the ending inventory cost on June 30.
   $

   5. Based upon the preceding data, would you expect the inventory using the A method of inventory costing based on the assumption that the most recent merchandise inventory costs should be charged against revenue.last-in, first-out method to be higher or lower?

Answer 1

Solution 1:

Computation of ending inventory COGS under FIFO - Dunne Co
Date	Beginning Inventory			Purchase			Cost of Goods Sold			Ending Inventory
	Qty	Rate	Amount	Qty	Rate	Amount	Qty	Rate	Amount	Qty	Rate	Amount
3-Apr	25	$1,200.00	$30,000.00	0	$0.00	$0.00	0	$0.00	$0.00	25	$1,200.00	$30,000.00
8-Apr	25	$1,200.00	$30,000.00	75	$1,240.00	$93,000.00	0	$0.00	$0.00	25	$1,200.00	$30,000.00
										75	$1,240.00	$93,000.00
11-Apr	25	$1,200.00	$30,000.00	0	$0.00	$0.00	25	$1,200.00	$30,000.00	60	$1,240.00	$74,400.00
	75	$1,240.00	$93,000.00				15	$1,240.00	$18,600.00
30-Apr	60	$1,240.00	$74,400.00	0	$0.00	$0.00	30	$1,240.00	$37,200.00	30	$1,240.00	$37,200.00
8-May	30	$1,240.00	$37,200.00	60	$1,260.00	$75,600.00	0	$0.00	$0.00	30	$1,240.00	$37,200.00
										60	$1,260.00	$75,600.00
10-May	30	$1,240.00	$37,200.00	0	$0.00	$0.00	30	$1,240.00	$37,200.00	40	$1,260.00	$50,400.00
	60	$1,260.00	$75,600.00				20	$1,260.00	$25,200.00
19-May	40	$1,260.00	$50,400.00	0	$0.00	$0.00	20	$1,260.00	$25,200.00	20	$1,260.00	$25,200.00
28-May	20	$1,260.00	$25,200.00	80	$1,260.00	$100,800.00	0	$0.00	$0.00	20	$1,260.00	$25,200.00
										80	$1,260.00	$100,800.00
5-Jun	20	$1,260.00	$25,200.00	0	$0.00	$0.00	40	$1,260.00	$50,400.00	60	$1,260.00	$75,600.00
	80	$1,260.00	$100,800.00
16-Jun	60	$1,260.00	$75,600.00	0	$0.00	$0.00	25	$1,260.00	$31,500.00	35	$1,260.00	$44,100.00
21-Jun	35	$1,260.00	$44,100.00	35	$1,264.00	$44,240.00	0	$0.00	$0.00	35	$1,260.00	$44,100.00
										35	$1,264.00	$44,240.00
28-jun	35	$1,260.00	$44,100.00	0	$0.00	$0.00	35	$1,260.00	$44,100.00	26	$1,264.00	$32,864.00
	35	$1,264.00	$44,240.00				9	$1,264.00	$11,376.00
Total							249		$310,776.00	26		$32,864.00

Solution 2:

Computation of Sales
Date	Sales Qty	Selling Price	Sale Value
11-Apr	40	$2,000.00	$80,000.00
30-Apr	30	$2,000.00	$60,000.00
10-May	50	$2,000.00	$100,000.00
19-May	20	$2,000.00	$40,000.00
5-Jun	40	$2,250.00	$90,000.00
16-Jun	25	$2,250.00	$56,250.00
28-Jun	44	$2,250.00	$99,000.00
Total	249		$525,250.00

Journal Entries
Date		Debit	Credit
30-Jun	Accounts Receivables Dr	$525,250.00
	To Sale Revenue		$525,250.00
	(To record sales revenue)
30-Jun	Cost of goods sold Dr	$310,776.00
	To Inventory		$310,776.00
	(Being inventories sold transferred to cost of goods sold account)

Solution 3:

Gross profit = Sales - COGS = $525,250 - $310,776 = $214,474

Solution 4:

Ending inventory cost on June 30 = $32,864

Solution 5:

As price are increasing in nature, therefore inventory using LIFO method to be lower.