Question

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?
CHART OF ACCOUNTS
Midnight Supplies
General Ledger
ASSETS 110 Cash 111 Petty Cash 120 Accounts Receivable 131 Notes Receivable 132 Interest Receivable 141 Inventory 145 Office Supplies 146 Store Supplies 151 Prepaid Insurance 181 Land 191 Office Equipment 192 Accumulated Depreciation-Office Equipment 193 Store Equipment 194 Accumulated Depreciation-Store Equipment LIABILITIES 210 Accounts Payable 221 Notes Payable 222 Interest Payable 231 Salaries Payable 241 Sales Tax Payable EQUITY 310 Common Stock 311 Retained Earnings 312 Dividends 313 Income Summary				REVENUE 410 Sales 610 Interest Revenue EXPENSES 510 Cost of Goods Sold 515 Credit Card Expense 516 Cash Short and Over 520 Salaries Expense 531 Advertising Expense 532 Delivery Expense 533 Insurance Expense 534 Office Supplies Expense 535 Rent Expense 536 Repairs Expense 537 Selling Expenses 538 Store Supplies Expense 561 Depreciation Expense-Office Equipment 562 Depreciation Expense-Store Equipment 590 Miscellaneous Expense 710 Interest Expense

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. Under FIFO, if units are in inventory at two different costs, enter the units with the LOWER unit cost first in the Cost of Goods Sold Unit Cost column and in the Inventory Unit Cost column.

Date	Purchases			Cost of goods Sold			Inventory
Date	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost
Jan. 1
10
10
28
28
30
Feb. 5
10
10
16
16
28
Mar. 5
5
14
14
25
25
30
30
31	Balances

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.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3
4

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?

Higher

Lower

Answer 1

STATEMENT SHOWING INVENTORY RECORD UNDER PERPETUAL FIFO METHOD
	RECIEPTS			COST OF GOODS SOLD			BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
1-Jan							7500	75	562500
10-Jan	22500	85	1912500				7500	75	562500
							22500	85	1912500
28-Jan				7500	75	562500
				3750	85	318750	18750	85	1593750
30-Jan				3750	85	318750	15000	85	1275000
5-Feb				1500	85	127500	13500	85	1147500
10-Feb	54000	87.5	4725000				13500	85	1147500
							54000	87.5	4725000
16-Feb				13500	85	1147500
				13500	87.5	1181250	40500	87.5	3543750
28-Feb				25500	87.5	2231250	15000	87.5	1312500
5-Mar	45000	89.5	4027500				15000	87.5	1312500
							45000	89.5	4027500
14-Mar				15000	87.5	1312500
				15000	89.5	1342500	30000	89.5	2685000
25-Mar	7500	90	675000				30000	89.5	2685000
							7500	90	675000
30-Mar				26250	89.5	2349375	3750	89.5	335625
							7500	90	675000
TOTAL	129000		11340000	130		10891875	11250		1010625
Req 2:
	Date	Description			Debit	Credit	Assets	Liabilities	Equity
1	31-Mar	Accounts receivable Dr.			19,875,000		19,875,000
		Sales revenue				19,875,000			19,875,000
2	31-Mar	Cost of goods Sold Dr.			10,891,875				-10,891,875
		Inventory				10,891,875	-10,891,875
Req 3
Gross profit:
Total sales		19,875,000
Les: COGS		10,891,875
Gross profit:		8,983,125
Req 4:
Ending balancec of Inventory is $ 1010,625
Req 5:
Lower, as the prices are rising the ending inventory in LIFO is based on earliest purchases.