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Chapter 6: 15E_2 (page 361)

Question:Super Mart, a regional convenience store chain, maintains milk inventory by the gallon.

The first month鈥檚 milk purchases and sales at its Freeport, Florida, location follow:

Nov. 2 Purchased 11 gallons @ \(2.15 each

6 Purchased 2 gallons @ \)2.80 each

8 Sold 6 gallons of milk to a customer

13 Purchased 3 gallons @ $2.85 each

14 Sold 4 gallons of milk to a customer

Requirements

2. Determine the amount that would be reported in ending merchandise inventoryon November 15 using the LIFO inventory costing method

Short Answer

Expert verified

The ending inventory on Nov.15 amounts to$12.9

Step by step solution

01

Step-by-Step-SolutionStep1: Perpetual Inventory LIFO Method

The Perpetual Inventory method is a system of maintaining inventory records continuously after every purchase and sale. LIFO is a method of allocating cost based on issuing assumption of last in first out.

So perpetual inventory under the LIFO method maintains the continuous record of inventory based on the last in first out assumption.

02

Calculation of ending inventory

Date

Purchase/opening

Sales

Balance

Units

Cost per unit

Amount

Units

Cost per unit

Amount

Units

Cost per unit

Amount

Nov 2

11

$2.15

$23.65

11

$2.15

$23.65

6

2

$2.80

$5.6

11

2

$2.15

$2.80

$29.25

8

2

4

$2.80

$2.15

$14.2

7

$2.15

$15.05

13

3

$2.85

$8.55

7

3

$2.15

$2.85

$23.6

14

3

1

$2.85

$2.15

$10.7

6

$2.15

$12.9

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Most popular questions from this chapter

Match the accounting terms with the corresponding definitions.

1. Specific identification

2. Materiality concept

3. Last-in, first-out (LIFO)

4. Conservatism

5. Consistency principle

6. Weighted-average

7. Disclosure principle

8. First-in, first-out (FIFO)

a. Treats the oldest inventory purchases as the first units sold.

b. Requires that a company report enough information for outsiders to make knowledgeable decisions.

c. Identifies exactly which inventory item was sold. Usually used for higher cost inventory.

d. Calculates a weighted-average cost based on the cost of goods available for sale and the number of units available.

e. Principle whose foundation is to exercise caution in reporting financial statement items.

f. Treats the most recent/newest purchases as the first units sold.

g. Businesses should use the same accounting methods from period to period.

h. Principle that states significant items must conform to GAAP.

Serenity Books has the following transactions in August related to merchandise inventory.

Aug. 1 Beginning merchandise inventory, 10 books @ \(15 each

3 Sold 3 books @ \)20 each

12 Purchased 8 books @ \(18 each

15 Sold 9 books @ \)20 each

20 Purchased 4 books @ \(20 each

28 Sold 5 books @ \)25 each

a. Determine the cost of goods sold and ending merchandise inventory by preparing a perpetual inventory record using the specific identification method. Assume the following costing information for the books sold during the month:

August 3: 3 books costing \(15 each

August 15: 4 books costing \)15 each and 5 books costing \(18 each

August 28: 2 books costing \)18 each and 3 books costing $20 each

What is the effect on the cost of goods sold, gross profit, and net income if ending merchandise inventory is understated?

T. J. Jackson Supplies had merchandise inventory that cost \(1,300. The market value of the merchandise inventory is \)750

.

What value should Jackson Supplies show on the balance sheet for merchandise inventory? Record the adjusting entry, if one is needed.

Under a perpetual inventory system, what are the four inventory costing methods, and how does each method determine ending merchandise inventory and cost of goods sold?
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