Question

Johnson Corporation began 2018 with inventory of 20,000 units of its only product. The units cost $9 each. The company uses a periodic inventory system and the LIFO cost method. The following transactions occurred during 2018: Purchased 100,000 additional units at a cost of $12 per unit. Terms of the purchases were 2/10, n/30, and 100% of the purchases were paid for within the 10-day discount period. The company uses the gross method to record purchase discounts. The merchandise was purchased f.o.b. shipping point and freight charges of $0.50 per unit were paid by Johnson. 2,000 units purchased during the year were returned to suppliers for credit. Johnson was also given credit for the freight charges of $0.50 per unit it had paid on the original purchase. The units were defective and were returned two days after they were received. Sales for the year totaled 95,000 units at $18 per unit. On December 28, 2018, Johnson purchased 6,000 additional units at $12 each. The goods were shipped f.o.b. destination and arrived at Johnson's warehouse on January 4, 2019. 23,000 units were on hand at the end of 2018.

Required: 1. Complete the below table to determine the ending inventory and cost of goods sold for 2018.

2. Assuming that operating expenses other than those indicated in the above transactions amounted to $170,000, determine income before income taxes for 2018.

1.

	Beginning inventory ? 2018 purchases ? Ending inventory ? Beginning inventory ? Net purchases: ? ? ? ? ? ? ? ? Cost of goods available for sale Less: Ending inventory Cost of goods sold ?

2.

Income before income taxes ?

Answer 1

Compute Ending inventory from current purchase: Ending inventory from current purchase = (Ending - Beginning)inventory units = 23,000-20,000 = 3,000 units Compute purchase after discount: Purchase after discount=$12x(100%-2%) =$11.76 Compute new price after discount: New price = Shipping point and freight charges + $11.76 = $0.50 + $11.76 = $12.26 Compute cost of ending inventory:

Ending Inventory =(20,000 $9)+(3,000 $12.26) = $180,000+$36,780 = S216,780 Compute COGS as follows: Cost of goods sold=95,000 $12.26 =$1,164,700 Compute Income before income tax as follows: Sales (95,000 $18) Less: COGS Gross Profit Less: Operating expenses Income before income taxes Amount $1,710,000 $1,164,700 $545,300 $170,000 $375,300