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	2,500	$52.00	$130,000
	10	Purchase	7,800	60.00	468,000
	28	Sale	3,750	104.00	390,000
	30	Sale	1,200	104.00	124,800
Feb.	5	Sale	500	104.00	52,000
	10	Purchase	17,500	62.00	1,085,000
	16	Sale	8,600	109.00	937,400
	28	Sale	8,900	109.00	970,100
Mar.	5	Purchase	14,200	63.60	903,120
	14	Sale	10,200	109.00	1,111,800
	25	Purchase	3,400	64.00	217,600
You are in Column Date	You are in Column Date30	You are in Column TransactionSale	You are in Column Number of Units7,900	You are in Column Per Unit109.00	You are in Column Total861,100

	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 A method of inventory costing based on the assumption that the most recent inventory costs should be charged against revenue. to be higher or lower?

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Chart of Accounts

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	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

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FIFO

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
You are in Column Date Date31	You are in Column Purchases QuantityBalances	You are in Column Purchases Unit Cost	You are in Column Purchases Total Cost	You are in Column Cost of Goods Sold Quantity	You are in Column Cost of Goods Sold Unit Cost	You are in Column Cost of Goods Sold Total Cost	You are in Column Inventory Quantity	You are in Column Inventory Unit Cost	You are in Column Inventory Total Cost

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Journal

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.

Answer 1

Ans. 1	MIDNIGHT SUPPLIES
	Schedule of Cost of Merchandise Sold
	FIFO Method
	For the three - months ended March 31
	Purchase				Cost of merchandise sold			Balance
	Date	Quantity	Unit cost	Total cost	Quantity	Unit cost	Total cost	Quantity	Unit cost	Total cost
	1-Jan	2500	$52.00	$130,000				2500	$52.00	$130,000
	10-Jan	7800	$60.00	$468,000				2500	$52.00	$130,000
								7800	$60.00	$468,000
	28-Jan				2500	$52.00	$130,000
					1250	$60.00	$75,000	6550	$60.00	$393,000
	30-Jan				1200	$60.00	$72,000	5350	$60.00	$321,000
	5-Feb				500	$60.00	$30,000	4850	$60.00	$291,000
	10-Feb	17500	$62.00	$1,085,000				4850	$60.00	$291,000
								17500	$62.00	$1,085,000
	16-Feb				4850	$60.00	$291,000
					3750	$62.00	$232,500	13750	$62.00	$852,500
	28-Feb				8900	$62.00	$551,800	4850	$62.00	$300,700
	5-Mar	14200	$63.60	$903,120				4850	$62.00	$300,700
								14200	$63.60	$903,120
	14-Mar				4850	$62.00	$300,700
					5350	$63.60	$340,260	8850	$63.60	$562,860
	25-Mar	3400	$64.00	$217,600				8850	$63.60	$562,860
								3400	$64.00	$217,600
	30-Mar				7900	$63.60	$502,440	950	$63.60	$60,420
								3400	$64.00	$217,600
	Total				Cost of goods sold		$2,525,700	Ending inventory		$278,020
	*In FIFO method the units that have purchased first, are released the first one and the ending inventory
	units remain from the last purchases.

Ans. 2	General Journal		Debit	Credit
	Accounts receivable		$4,447,200
	Sales			$4,447,200
	(Total sales recorded)
	Cost of merchandise sold		$2,525,700
	Merchandise inventory			$2,525,700
	(Total cost of merchandise sold)
	*Calculation of sales:
	Date	Units	Rate	Cost
	28-Jan	3750	$104.00	$390,000
	30-Jan	1200	$104.00	$124,800
	5-Feb	500	$104.00	$52,000
	16-Feb	8600	$109.00	$937,400
	28-Feb	8900	$109.00	$970,100
	14-Mar	10200	$109.00	$1,111,800
	30-Mar	7900	$109.00	$861,100
	Total sales			$4,447,200
Ans. 3	Sales		$4,447,200
	Less: Cost of goods sold		$2,525,700
	Gross profit		$1,921,500
Ans. 4	Ending inventory		$278,020
Ans. 5	The inventory would be lower while using the last in first out method.
	This is so because inventory remains from first (starting) purchases in
	Last in first out method and the unit cost of starting purchases are lower
	so the cost of inventory will be calculated on lower unit costs.