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 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.
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.
Unit Total Unit Total Unit Total
Quantity Cost Cost Quantity Cost Cost Quantity Cost Cost
Jan. 17,500 75.00 562,500
10 22,500 85.00 1,912,5007,500 75.00 562,500
22,500 85.00 1,912,500
287,500 75.00 562,500
3,750 85.00 318,750 18,750 85.00 1,593,750
303,750 85.00 318,750 15,000 85.00 1,275,000
Feb. 51,500 85.00 127,500 13,500 85.00 1,147,500
10 54,000 87.50 4,725,00013,500 85.00 1,147,500
54,000 87.50 4,725,000
1613,500 85.00 1,147,500
13,500 87.50 1,181,250 40,500 87.50 3,543,750
2825,500 87.50 2,231,250 15,000 87.50 1,312,500
Mar. 5 45,000 89.50 4,027,50015,000 87.50 1,312,500
45,000 89.50 4,027,500
1415,000 87.50 1,312,500
15,000 89.50 1,342,500 30,000 89.50 2,685,000
25 7,500 90.00 675,00030,000 89.50 2,685,000
7,500 90.00 675,000
3026,250 89.50 2,349,375 3,750 89.50 335,625
7,500 90.00 675,000
31 Balances10,891,8751,010,625
2. Accounts Receivable19,875,000
Sales19,875,000
Cost of Merchandise Sold 10,891,875
Merchandise Inventory10,891,875
*$19,875,000 = $1,687,500 + $562,500 + $225,000 + $4,320,000 + $4,080,000 + $4,800,000 + $4,200,000
3. $8,983,125 ($19,875,000 – $10,891,875)
4. $1,010,625 ($335,625 + $675,000)
5. Because the prices rose from $75 for the January 1 inventory to $90 for the purchase
on March 25, we would expect that under the last-in, first-out method, the inventory
would be lower.