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
	30	Sale	7,900	109.00	861,100

	Instructions
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.
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 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 inventory using the last-in, first-out method to be higher or lower?

Answer 1

1.

	FIFO	Purchases			Cost of Goods Sold			Inventory on hand
Date	Activity	Units	Unit Price	Amount	Units	Unit Price	Amount	Units	Unit Price	Amount
Jan. 1	Beginning Inventory							2500	$            52.00	$        130,000
Jan. 10	Purchase	7800	$            60.00	$        468,000				2500	$            52.00	$        130,000
								7800	$            60.00	$        468,000
Jan. 28	Sales				2500	$            52.00	$        130,000
					1250	$            60.00	$          75,000	6550	$            60.00	$        393,000
Jan. 30	Sale				1200	$            60.00	$          72,000	5350	$            60.00	$        321,000
Feb. 5	Sale				500	$            60.00	$          30,000	4850	$            60.00	$        291,000
Feb. 10	Purchase	17500	$            62.00	$    1,085,000				4850	$            60.00	$        291,000
								17500	$            62.00	$    1,085,000
Feb. 16	Sale				4850	$            60.00	$        291,000
					3750	$            62.00	$        232,500	13750	$            62.00	$        852,500
Feb. 28	Sale				8900	$            62.00	$        551,800	4850	$            62.00	$        300,700
Mar. 5	Purchase	14200	$            63.60	$        903,120				4850	$            62.00	$        300,700
								14200	$            63.60	$        903,120
Mar. 14	Sale				4850	$            62.00	$        300,700
					5350	$            63.60	$        340,260	8850	$            63.60	$        562,860
Mar. 25	Purchase	3400	$            64.00	$        217,600				8850	$            63.60	$        562,860
								3400	$            64.00	$        217,600
Mar. 30	Sale				7900	$            63.60	$        502,440	950	$            63.60	$          60,420
								3400	$            64.00	$        217,600
	Total	42900		$    2,673,720	41050		$    2,525,700	4350		$       278,020

2.

Account Titles	Debit	Credit
Accounts Receivable	$    4,447,200
Sales Revenue		$    4,447,200
(To record sales)
Cost of Goods Sold	$    2,525,700
Merchandise Inventory		$    2,525,700
(To record cost of sales)

3. Gross Profit = Sales - Cost of Goods Sold
= $4447200 - 2525700 = $1,921,500

4. Ending Inventory = $278,020

5. Inventory using LIFO will be lower, as it will consist of earliest purchases made at lower prices