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Chapter 6: Q 20E-1 (page 363)

Assume that AB Tire Store completed the following perpetual inventory transactions for a line of tires:

May 1 Beginning merchandise inventory 16 tires @ \( 65 each

11 Purchase 10 tires @ \) 78 each

23 Sale 12 tires @ \( 88 each

26 Purchase 14 tires @ \) 80 each

29 Sale 18 tires @ $ 88 each

Requirements

1. Compute cost of goods sold and gross profit using the FIFO inventory costing method.

Short Answer

Expert verified

Cost of goods sold: $2,140

Gross Profit: $500

Step by step solution

01

Step-by-Step-SolutionStep 1: Computation of cost of goods sold using FIFO

Date
Purchase/openingSalesBalance

Units

Cost per unit

Amount

Units

Cost per unit

Amount

Units

Cost per unit

Amount

May1

16

$65

$1,040

16

$65

$1,040

11

10

$78

$780

16

10

$65

$78

$1,820

23

12

$65

$780

4

10

$65

$78

$1,040

26

14

$80

$1,120

4

10

14

$65

$78

$80

$2,160

29

4

10

4

$65

$78

$80

$1,360

10

$80

$800

Total

40

$2,940

30

$2,140

10

$80

$800

02

Calculation of gross profit

NetRevenue=Salevalueof23rdMay+Salevalueof29thMay=12脳$88+18脳$88=30脳$88=$2,640

GrossProfit=NetRevenue-Costofgoodssold=$2,640-$2,140=30脳$88=$500

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Most popular questions from this chapter

Assume that AB Tire Store completed the following perpetual inventory transactions for a line of tires:

May 1 Beginning merchandise inventory 16 tires @ \( 65 each

11 Purchase 10 tires @ \) 78 each

23 Sale 12 tires @ \( 88 each

26 Purchase 14 tires @ \) 80 each

29 Sale 18 tires @ $ 88 each

Requirements

2. Compute cost of goods sold and gross profit using the LIFO inventory costing method.

Question:Golf Unlimited carries an inventory of putters and other golf clubs. The sales price of each putter is \(119. Company records indicate the following for a particular line ofGolf Unlimited鈥檚 putters:

Date Item Quantity Unit Cost

Nov. 1 Balance 24 \) 53

6 Sale 20

8 Purchase 30 70

17 Sale 30

30 Sale 2

Requirements

2. Journalize Golf Unlimiteds inventory transactions using the LIFO inventory costingmethod. (Assume purchases and sales are made on account.)

Question:Golf Unlimited carries an inventory of putters and other golf clubs. The sales price of each putter is \(119. Company records indicate the following for a particular line ofGolf Unlimited鈥檚 putters:

Date Item Quantity Unit Cost

Nov. 1 Balance 24 \) 53

6 Sale 20

8 Purchase 30 70

17 Sale 30

30 Sale 2

Requirements

1. Prepare Golf Unlimited鈥檚 perpetual inventory record for the putters assuming GolfUnlimited uses the weighted-average inventory costing method. Round weightedaveragecost per unit to the nearest cent and all other amounts to the nearest dollar.Then identify the cost of ending inventory and cost of goods sold for the month.

Question:New York Pool Supplies鈥檚 merchandise inventory data for the year ended December 31, 2019, follow:

Net Sales Revenue\( 58,000

Cost of Goods Sold:

Beginning Merchandise Inventory\) 4,900

Net Cost of Purchases 32,500

Cost of Goods Available for Sale37,400

Less: Ending Merchandise Inventory 4,700

Cost of Goods Sold32,700

Gross Profit $ 25,300

Requirements

2. How would the inventory error affect New York Pool Supplies鈥檚 cost of goodssold and gross profit for the year ended December 31, 2020, if the error is not correctedin 2019?

Futuristic Electronic Center began October with 65 units of merchandise inventory that cost \(82 each. During October, the store made the following purchases:

Oct. 3 25 units @ \) 90 each

12 30 units @ \( 90 each

18 35 units @ \) 96 each

Futuristic uses the periodic inventory system, and the physical count at October 31 indicates that 80 units of merchandise inventory are on hand.

Requirements

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