Question

The Shirt Shop had the following transactions for T-shirts for Year 1, its first year of operations:

Jan. 20	Purchased	480	units	@	$	9	=	$	4,320
Apr. 21	Purchased	280	units	@	$	11	=		3,080
July 25	Purchased	360	units	@	$	14	=		5,040
Sept. 19	Purchased	170	units	@	$	16	=		2,720

During the year, The Shirt Shop sold 1,050 T-shirts for $25 each.

A. Compute the amount of ending inventory The Shirt Shop would report on the balance sheet, assuming the following cost flow assumptions: (1) FIFO, (2) LIFO, and (3) weighted average. (Round cost per unit to 2 decimal places and final answers to the nearest whole dollar amount.)

B. Record the above transactions in general journal form and post to T-accounts using (1) FIFO, (2) LIFO, and (3) weighted average. Use a separate set of journal entries and T-accounts for each method. Assume all transactions are cash transactions.
  

c. Compute the difference in gross margin between the FIFO and LIFO cost flow assumptions.

Answer 1

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Due to character limit I am attaching the image of some parts Journal Entry Inventory Debit $ Debit $ Credit $ Credit Date Account Date Account Date Account 20-Jan 4,320.00 4,320.00 31-Dec Cost of Goods sold Inventory 20-Jan Cash 12,337.50 Cash 4,320.00 31-Dec Closing Balance 2,822.50 21-Apr Cash 3,080.00 25-Jul Cash 5,040.00 21-Apr 19-Sep Cash Inventory 3,080.00 2,720.00 15,160.00 15,160.00 Cash 3,080.00 25-Jul Cost of Goods sold Inventory 5,040.00 Debit $ Credit $ Cash 5,040.00 Date Account Date Account 31-Dec Income Summary 31-Dec Inventory 12,337.50 12,337.50 19-Sep 12,337.50 12,337.50 Inventory 2,720.00 Cash 2,720.00 Sales 31-Dec Debit $ Credit $ Cash 26,250.00 Date Account Date Account 31-Dec Income Summary Sales Cash 26,250.00 26,250.00 31-Dec 26,250.00 26,250.00 26,250.00 31-Dec Cost of Goods sold 12,337.50 Inventory 12,337.50 The difference in gross margin FIFO LIFO Sales 26,250.00 26,250.00 Cost of Goods sold 11,460.00 13,000.00 Gross margin 14,790.00 13,250.00 Difference 1,540.00 .

Sale Revenue
Units sold	1,050.00
Sell Price	25.00
Sale Revenue	26,250.00

Periodic FIFO
Date	Cost of Goods available for sale			Cost of Goods sold			Inventory Balance
	No. of Units	Cost per unit	Amount	No. of Units	Cost per unit	Cost of Goods sold	No. of Units	Cost per unit	Inventory Balance
20-Jan	480.00	9.00	4,320.00	480.00	9.00	4,320.00
21-Apr	280.00	11.00	3,080.00	280.00	11.00	3,080.00
25-Jul	360.00	14.00	5,040.00	290.00	14.00	4,060.00	70.00	14.00	980.00
19-Sep	170.00	16.00	2,720.00				170.00	16.00	2,720.00
Total	1,290.00		15,160.00	1,050.00		11,460.00	240.00		3,700.00

Journal Entry
Date	Account	Debit $	Credit $
20-Jan	Inventory	4,320.00
	Cash		4,320.00
21-Apr	Inventory	3,080.00
	Cash		3,080.00
25-Jul	Inventory	5,040.00
	Cash		5,040.00
19-Sep	Inventory	2,720.00
	Cash		2,720.00
31-Dec	Cash	26,250.00
	Sales		26,250.00
31-Dec	Cost of Goods sold	11,460.00
	Inventory		11,460.00

Inventory
Date	Account	Debit $	Date	Account	Credit $
20-Jan	Cash	4,320.00	31-Dec	Cost of Goods sold	11,460.00
21-Apr	Cash	3,080.00	31-Dec	Closing Balance	3,700.00
25-Jul	Cash	5,040.00
19-Sep	Cash	2,720.00
		15,160.00			15,160.00
Cost of Goods sold
Date	Account	Debit $	Date	Account	Credit $
31-Dec	Inventory	11,460.00	31-Dec	Income Summary	11,460.00
		11,460.00			11,460.00
Sales
Date	Account	Debit $	Date	Account	Credit $
31-Dec	Income Summary	26,250.00	31-Dec	Cash	26,250.00
		26,250.00			26,250.00

Periodic LIFO
Date	Cost of Goods available for sale			Cost of Goods sold			Inventory Balance
	No. of Units	Cost per unit	Amount	No. of Units	Cost per unit	Cost of Goods sold	No. of Units	Cost per unit	Inventory Balance
20-Jan	480.00	9.00	4,320.00	240.00	9.00	2,160.00	240.00	9.00	2,160.00
21-Apr	280.00	11.00	3,080.00	280.00	11.00	3,080.00	-	11.00	-
25-Jul	360.00	14.00	5,040.00	360.00	14.00	5,040.00	-	14.00	-
19-Sep	170.00	16.00	2,720.00	170.00	16.00	2,720.00	-	16.00	-
Total	1,290.00		15,160.00	1,050.00		13,000.00	240.00		2,160.00

Journal Entry
Date	Account	Debit $	Credit $
20-Jan	Inventory	4,320.00
	Cash		4,320.00
21-Apr	Inventory	3,080.00
	Cash		3,080.00
25-Jul	Inventory	5,040.00
	Cash		5,040.00
19-Sep	Inventory	2,720.00
	Cash		2,720.00
31-Dec	Cash	26,250.00
	Sales		26,250.00
31-Dec	Cost of Goods sold	13,000.00
	Inventory		13,000.00

Inventory
Date	Account	Debit $	Date	Account	Credit $
20-Jan	Cash	4,320.00	31-Dec	Cost of Goods sold	13,000.00
21-Apr	Cash	3,080.00	31-Dec	Closing Balance	2,160.00
25-Jul	Cash	5,040.00
19-Sep	Cash	2,720.00
		15,160.00			15,160.00
Cost of Goods sold
Date	Account	Debit $	Date	Account	Credit $
31-Dec	Inventory	13,000.00	31-Dec	Income Summary	13,000.00
		13,000.00			13,000.00
Sales
Date	Account	Debit $	Date	Account	Credit $
31-Dec	Income Summary	26,250.00	31-Dec	Cash	26,250.00
		26,250.00			26,250.00

Periodic Weighted Average
Date	No. of Units	Cost per unit	Amount
20-Jan	480.00	9.00	4,320.00
21-Apr	280.00	11.00	3,080.00
25-Jul	360.00	14.00	5,040.00
19-Sep	170.00	16.00	2,720.00
Total	1,290.00		15,160.00
Average Cost per unit		11.75
	Units sold	1,050.00
	Cost of Goods sold	12,337.50