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Chapter 6: Q2TI-b (page 338)

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

b. Determine the cost of goods sold and ending merchandise inventory by preparing a perpetual inventory record using the FIFO inventory costing method.

Short Answer

Expert verified

Cost of goods sold: $306

Ending Inventory: $98

Step by step solution

01

FIFO inventory costing under perpetual record

FIFO costing is a cost flow assumption of the first-in-first-out order for the issued inventory. Perpetual record is the method of updating inventory accounts continuously for each event. So FIFO inventory under perpetual record is the method of applying FIFO assumption for continuous updating of inventory records.

02

Computation of COGS and Ending Inventory under FIFO

Date

Purchase/opening

Sales

Balance

Units

Cost per unit

Amount

Units

Cost per unit

Amount

Units

Cost per unit

Amount











Aug1

10

$15

$150

10

$15

$150

3

3

$15

$75

7

$15

$105

12

8

$18

$144

7

8

$15

$18

$249

15

7

2

$15

$18

$141

6

$18

$108

20

4

$20

$80

6

4

$18

$20

$188

28

5

$18

$90

1

4

$18

$20

$98

Total

22

$374

17

$306

5

$98

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Most popular questions from this chapter

Which principle states that businesses should use the same accounting methods and procedures from period to period?

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.

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

5. Compute gross profit for January using FIFO, LIFO, and weighted-average inventorycosting methods.

Question:Antique Carpets鈥檚 books show the following data. In early 2020, auditors found that the ending merchandise inventory for 2017 was understated by \(8,000 and that theending merchandise inventory for 2019 was overstated by \)9,000. The ending merchandiseinventory at December 31, 2018, was correct.

2019

2018

2017

Net Sales Revenue

\( 212,000

\) 161,000

\( 170,000

Cost of Goods Sold:

Beginning Merchandise Inventory

\)22,000

\(28,000

\)41,000

Net cost of purchase

131,000

100,000

86,000

Cost of goods available for sale

153,000

128,000

127,000

Less: Ending Merchandise Inventory

34,000

22,000

28,000

Cost of goods sold

119,000

106,000

99,000

Gross Profit

93,000

55,000

71,000

Operating Expenses

63,000

28,000

39,000

Net Income

\( 30,000

\) 27,000

$ 32,000

Requirements

1. Prepare corrected income statements for the three years.

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?
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