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Chapter 6: Q 20E-2 (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

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

Short Answer

Expert verified

Cost of goods sold: $2,290

Gross Profit: $350

Step by step solution

01

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

Date
Purchase/opening
Sales
Balance

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

10

2

$78

$65

$910

14

$65

$910

26

14

$80

$1,120

14

14

$65

$80

$2,030

29

14

4

$80

$65

$1,380

10

$65

$650

Total

40

$2,940

30

$2,290

10

$65

$650

02

Calculation of gross profit

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

GrossProfit=NetRevenue-Costofgoodssold=$2,640-$2,290=$350

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Most popular questions from this chapter

Clarmont 91影视, which uses the FIFO inventory costing method, has the following account balances at May 31, 2019, prior to releasing the financial statements for the year:

Merchandise Inventory, ending \( 13,500

Cost of Goods Sold 68,000

Net Sales Revenue 123,000

Clarmont has determined that the current replacement cost (current market value) of the May 31, 2019, ending merchandise inventory is \)12,400.

Requirements

2. What value would Clarmont report on the balance sheet at May 31, 2019, for merchandise inventory?

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.

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

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.

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

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