Question

FIFO Perpetual Inventory

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	72		$600		$43,200
8		Purchase	144		720		103,680
11		Sale	96		2,000		192,000
30		Sale	60		2,000		120,000
May 8		Purchase	120		800		96,000
10		Sale	72		2,000		144,000
19		Sale	36		2,000		72,000
28		Purchase	120		880		105,600
June 5		Sale	72		2,100		151,200
16		Sale	96		2,100		201,600
21		Purchase	216		960		207,360
28		Sale	108		2,100		226,800

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 the three months ended May 31, 2016
	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
Record cost

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

4. Determine the ending inventory cost as of June 30.
$

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

Requirement 1
	Dunne Co.
	Schedule of Cost of Merchandise Sold
	FIFO Method
	For the three months ended May 31, 2016
		Purchases			Cost of Merchandise Sold			Inventory
	Date	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost
	Apr. 3							72	600	43200
	Apr. 8	144	720	103680				72	600	43200
								144	720	103680
	Apr. 11				72	600	43200	120	720	86400
					24	720	17280
	Apr. 30				60	720	43200	60	720	43200
	May-08	120	800	96000				60	720	43200
								120	800	96000
	May-10				60	720	43200	108	800	86400
					12	800	9600
	May-19				36	800	28800	72	800	57600
	May-28	120	880	105600				72	800	57600
								120	880	105600
	Jun-05				72	800	57600	120	880	105600
	Jun-16				96	880	84480	24	880	21120
	Jun-21	216	960	207360				24	880	21120
								216	960	207360
	Jun-28				24	880	21120	132	960	126720
					84	960	80640
	Jun-30	600		512640	540		429120	132	960	126720
Requirement 2	Determination of the total sales and the total cost of merchandise sold for the period.
	Record sale		540	1107600		=96*2000+60*2000+72*2000+36*2000+72*2100+96*2100+108*2100
	Record cost		540	429120
							Amount in $
		Date	General Journal				Debit	Credit
			Accounts Receivable				1107600
				Revenue from sales				1107600
			Cost of goods sold				429120
				Inventory				429120
			To record the sales on account and cost of goods sold
Requirement 3
	Determination of gross profit from sales for the period
	Gross profit =Sales-cost of goods sold
	Gross profit =	1107600-429120
	Gross profit =	678480
Requirement 4
	Determination of ending inventory cost as of June 30
			Inventory
			Quantity	Unit Cost	Total Cost
			132	960	126720
Requirement 5	Based on the preceding data, we expect the inventory using LIFO method to be lower,
	as in the beginning the unit cost of merchandise was lower than the current one. So
	if we value the inventory using LIFO, it will be lower.