Question

E6.4 (LO 2) AP On May 1, Black Bear Company had 400 units of inventory on hand, at a cost of $4.00 each. The company uses a perpetual inventory system. All purchases and sales are on account. A record of inventory transactions for the month of May for the company is as follows: Purchases Sales 300@ $7.00 1,000 @ $7.00 400 @ $7.50 May 4 May 3 1,300@ $4.10 700 @ $4.40 14 16 29 500@ $4.75 18 Instructions a. Calculate the cost of goods sold and ending inventory using FIFO. b. Prepare journal entries to record the May 4 purchase and the May 3 and 16 sales. c. Calculate gross profit for May

Answer 1

	Unit	Unit Cost	Total Cost
Beginning inventory	400	4	1600
May 4 Purchase	1300	4.10	5330
May 14 Purchase	700	4.40	3080
May 29 Purchase	500	4.75	2375
Total	2900		12385

a) Cost of goods sold = 1600+5330 = 6930

Ending inventory = 12385-6930 = 5455

b) Journal entry

Date	account and explanation	Debit	Credit
May 4	Merchandise inventory	5330
	Account payable		5330
	(To record purchase)
May 3	Account receivable (300*7)	2100
	Sales revenue		2100
	(To record sales)
	Cost of goods sold (300*4)	1200
	Merchandise inventory		1200
	(To record cost of goods sold)
May 16	Account receivable (	7000
	Sales revenue		7000
	(To record sales)
	Cost of goods sold (900*4.1+400)	4090
	Merchandise inventory		4090
	(To record cost of goods sold)

c) Sales revenue = (1300*7+400*7.50) = 12100

Gross profit = 12100-6930 = 5170