Question

(10 points) During June, the following changes in inventory item 28 took place: 5,000 units @ S21 1,500 units @ $45 2,000 units @ $50 1,000 units @ $25 1,000 units @ $22 3,000 units @ $52 Balance 8 Sold 10 Sold 14 Purchased 24 Purchased June 1 29 Sold Perpetual inventories are maintained. (6 points) What is the cost of the ending inventory and cost of goods sold for item 27 under LIFO and under FIFO? a. (4 points) Record the journal entry for the sale on the 29th assuming LIFO and a 5% sales tax. b.

Answer 1

Solution

(a)

Under FIFO Method, the valuation would be as follows,

Date	Particulars	Purchase/Sales					Balance
		Units	Rate	Cost Value	Selling Rate	Sales Value	Units	Rate	Value
Jun-01	Opening Balance						5000	$ 21.00	$ 1,05,000.00
Jun-08	Sales	1500	$                 21.00	$ 31,500.00	$          45.00	$     67,500.00	-1500	$ 21.00	$   -31,500.00
							3500	$ 21.00	$     73,500.00
Jun-10	Sales	2000	$                 21.00	$ 42,000.00	$          50.00	$ 1,00,000.00	-2000	$ 21.00	$   -42,000.00
							1500	$ 21.00	$     31,500.00
Jun-14	Purchases	1000	$                 25.00	$ 25,000.00			1000	$ 25.00	$     25,000.00
							2500	$        -	$     56,500.00
Jun-24	Purchases	1000	$                 22.00	$ 22,000.00			1000	$ 22.00	$     22,000.00
							3500	$        -	$     78,500.00
Jun-29	Sales	3000	(1500 x $ 21.00)	$ 31,500.00
			(1000 x $ 25.00)	$ 25,000.00
			(500 x $ 22.00)	$ 11,000.00
				$ 67,500.00	$          52.00	$ 1,56,000.00	-3000	$        -	$   -67,500.00
	Closing Balance						500	$        -	$     11,000.00

Therefore,

Closing Balance of Inventory (500 units) = $ 11,000.00

and, Cost of Goods Sold = $ (31,500 + 42,000 + 67,500) = $ 141,000

Under LIFO Basis,

Date	Particulars	Purchase/Sales					Balance
		Units	Rate	Cost Value	Selling Rate	Sales Value	Units	Rate	Value
Jun-01	Opening Balance						5000	$ 21.00	$ 1,05,000.00
Jun-08	Sales	1500	$                 21.00	$ 31,500.00	$          45.00	$     67,500.00	-1500	$ 21.00	$   -31,500.00
							3500	$ 21.00	$     73,500.00
Jun-10	Sales	2000	$                 21.00	$ 42,000.00	$          50.00	$ 1,00,000.00	-2000	$ 21.00	$   -42,000.00
							1500	$ 21.00	$     31,500.00
Jun-14	Purchases	1000	$                 25.00	$ 25,000.00			1000	$ 25.00	$     25,000.00
							2500	$        -	$     56,500.00
Jun-24	Purchases	1000	$                 22.00	$ 22,000.00			1000	$ 22.00	$     22,000.00
							3500	$        -	$     78,500.00
Jun-29	Sales	3000	(1000 X $ 22.00)	$ 22,000.00
			(1000 x $ 25.00)	$ 25,000.00
			(1000 x $ 21.00)	$ 21,000.00
				$ 68,000.00	$          52.00	$ 1,56,000.00	-3000	$        -	$   -68,000.00
	Closing Balance						500	$        -	$     10,500.00

Therefore,

Closing Balance of Inventory (500 units) = $ 10,500.00

and, Cost of Goods Sold = $ (31,500 + 42,000 + 68,000) = $ 141,500

(b)

Assuming the sales made for cash under LIFO basis,

Cash A/c .................... Dr. 156,000
To, Sales A/c 156,000

Sales A/c ................... Dr. 156,000
To, Cost of Goods Sold A/c 68,000
To, Profit and Loss A/c
(156,000 - 141,500) 14,500

Sales Tax A/c ............. Dr.
(156,000 x 5%) 7,800
To, Cash A/c 7,800

Profit and Loss A/c ..... Dr. 7,800
To, Sales Tax A/c 7,800