Question

The beginning inventory at Funcky Party and data on purchases and sales for a three month period ending March 31, 2016 are as follows:Jan 1 inventory 2,600 54.00 140,400

Jan.10 purchase 7000 62.00 434,000

Jan 28 sale 3,850 108.00 415.800

Jan 30 sale 1,300 109.00 140,400

Feb 5 sale 500 108.00 54,000

Feb 10 purchase 17,500 64.00 1,120,000

Feb16 sale 8,700 113.00 983,100

Feb 28 sale 8,600 113.00 971,800

March 5 purchase 14,000 65.00 918,400

Mar 14 sale 10,100 113.00 1,141,300

Mar 25 purchase 3,300 66.00 217,800

March 30 sale 7,750 113.00 875,750

1).Record the inventory, purchase, and cost of merchandise sole data in a perpetual inventory system record similar to the one illustrated in ex.4 using first in first out method?

2). Determine the total sales and total cost of merchandise sold for the period. Journalize the entries in the sale and cost of the merchandise 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 inventory cost as of March 31, 2016

5). Based upon the preceding data, would you expect the inventory using the last in first out method to be higher or lower?

Answer 1

1.

		Opening+Purchases			Cost of Sales
Date	Particulars	Units	Price	Cost	Units	Price	Cost	Balance	Detail
1-Jan	Opening inventory	2,600	54	140,400				140,400	2600@54
10-Jan	Purchases	7,000	62	434,000				574,400	2600@54+7000@62
28-Jan	Sales				2,600	54	140,400	434,000
					1,250	62	77,500	356,500	5750@62
30-Jan	Sales				1,300	62	80,600	275,900	4450@62
5-Feb	Sales				500	62	31,000	244,900	3950@62
10-Feb	Purchases	17,500	64	1,120,000				1,364,900	3950@62+17500@64
16-Feb	Sales				3,950	62	244,900	1,120,000
					4,750	64	304,000	816,000	12750@64
28-Feb	Sales				8,600	64	550,400	265,600	4150@64
5-Mar	Purchases	14,000	65	910,000				1,175,600	4150@64+14000@65
14-Mar	Sales				4,150	64	265,600	910,000
					5,950	65	386,750	523,250	8050@65
25-Mar	Purchases	3,300	66	217,800				741,050	8050@65+3300@66
30-Mar	Sales				7,750	65	503,750	237,300	300@65+3300@66
	Total						2,584,900

2. Total cost of merchandise sold (calculated in part1.) = $2,584,900

Total Sales = 415800+140400+54000+983100+971800+1141300+875750= $4,582,150

Journal entries:

Cost of merchandise sold                   2,584,900

                    Inventory                                         2,584,900

Account Receivables                         4,582,150

                    Sales                                              4,582,150

3. Gross profit = Sales - Cost of merchandise sold = 4582150-2584900 = $1,997,250

4. Inventory cost (calculated in part 1.) = 300@65 + 3300@66 = $237,300

5. If we use Last in First out method of inventory valuation, the value would be lower tha $237,300 because the inventory purchased at lower cost purchased first will still be there in ending inventory. The merchandise purchased later at higher cost is sold first.