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Chapter 6: 5SE_1 (page 358)

Question:Boston Cycles started October with 12 bicycles that cost \(42 each. On October 16, Boston bought 40 bicycles at \)68 each. On October 31, Boston sold 34 bicycles for$100 each.

Preparing a perpetual inventory record and journal entries鈥擫IFO

Requirements

1. Prepare Boston Cycle鈥檚 perpetual inventory record assuming the company uses theLIFO inventory costing method.

Short Answer

Expert verified

The cost of goods sold under the LIFO method amounts to $2,312.

Step by step solution

01

Step-by-Step-SolutionStep1: LIFO costing method

LIFO costing is another method of inventory valuation in which the inventory is valued based on the recent purchasing cost assuming that the inventory is being used in the reverse order of acquiring them. The cost of ending inventory under this method is based on the historical cost.

02

Perpetual inventory record based on the LIFO method

Date

Purchase / Opening inventory

Sale

Balance

Unit

Cost

Amount

Unit

Cost

Amount

Unit

Cost

Amount

Oct 1

12

$42

$504

12

$42

$504

Oct 16

40

$68

$2,720

12

40

$42

$68

$3,224

Oct 31

34

$68

$2,312

12

6

$42

$68

$912

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Most popular questions from this chapter

During periods of rising costs, which inventory costing method produces the highest gross profit?

Steel It began January with 55 units of iron inventory that cost \(35 each. During January, the company completed the following inventory transactions:

Units Unit Cost Unit Sales Price

Jan. 3 Sale 45 \) 83

8 Purchase 75 $ 52

21 Sale 70 85

30 Purchase 10 55

Requirements

2. Prepare a perpetual inventory record for the merchandise inventory using theLIFO inventory costing method.

Nature Foods Grocery reported the following comparative income statements for the years ended June 30, 2019 and 2018:

NATURE FOODS GROCERY
Income Statements
Years Ended June 30, 2019 and 2018

2019

2018

Net Sales Revenue

\( 134,000

\) 119,000

Cost of Goods Sold:

Beginning Merchandise Inventory

\(17,000

\)14,000

Net Cost of Purchases

78,000

67,000

Cost of Goods Available for Sale

95,000

81,000

Less: Ending Merchandise Inventory

18,000

17,000

Cost of Goods Sold

77,000

64,000

Gross Profit

57,000

55,000

Operating Expenses

26,000

21,000

Net Income

\( 31,000

\) 34,000

During 2019, Nature Foods Grocery discovered that ending 2018 merchandise inventory was overstated by $5,500.

Requirements

2. State whether each year鈥檚 net income鈥攂efore your corrections鈥攊s understated or overstated, and indicate the amount of the understatement or overstatement.

Right Now Electronic Center began October with 100 units of merchandise inventory that cost \(70 each. During October, the store made the following purchases:

Oct. 3 35 units @ \) 82 each

12 45 units @ \( 84 each

18 75 units @ \) 90 each

Right Now uses the periodic inventory system, and the physical count at October 31indicates that 130 units of merchandise inventory are on hand.

Requirements

1. Determine the ending merchandise inventory and cost of goods sold amountsfor the October financial statements using the FIFO, LIFO, and weighted-averageinventory costing methods.

Right Now Electronic Center began October with 100 units of merchandise inventory that cost \(70 each. During October, the store made the following purchases:

Oct. 3 35 units @ \) 82 each

12 45 units @ \( 84 each

18 75 units @ \) 90 each

Right Now uses the periodic inventory system, and the physical count at October 31indicates that 130 units of merchandise inventory are on hand.

Requirements

3. Which method will result in the lowest income taxes for Right Now? Why? Whichmethod will result in the highest net income for Right Now? Why?
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