Question

Lynbrook, Inc. has recently decided to diversity its business by selling cases of paper to supplement their IT services business. As the Controller of Lynbrook, Inc. you need to determine the inventory costing method that will be used to record inventory transactions. Lynbrook began 2020 with 8,000 cases of paper. The cost of each case is $6. Merchandise transactions for the month of January 2020 are as follows: Purchases Date of Purchase Cases Cost/case Jan. 10 Total Cost $ 32,000 90,000 $122,000 4,000 $8 9,000 $ 10 13,000 Sales (sales price $15 per case) Jan. 18 Totals Date of Sale Cases Jan. 5 5,000 Jan. 12 6,000 Jan. 20 9,000 20,000 Total 1,000 units were on hand at the end of the month. Required: 1. Calculate January's ending inventory and cost of goods sold for the month using each of the following alternatives (prepare your solution based on the format used in the Review Problem located on pages 330-332): A. FIFO, perpetual system B.LIFO, perpetual system C. Average cost, perpetual system (round to two decimals, if needed) 2. After your analysis, you recommended that Lynbrook use the FIFO inventory costing method. Prepare the journal entries to record the purchases and sales (Sales Revenue and Cost of Goods Sold) of inventory during January 2020. All sales were "on account”. Reminder: Continue using the excel HW policies for preparing and printing your solutions to the above questions, including the standard four line heading.

Answer 1

  

				FIFO
Date	Receipts			Issue ( Cost of goods sold)			Balance
	qty	price	total	qty	price	total	qty	price	total
Jan-01			0			0	8000	6	48000
Jan-05	0	0	0	5000	6	30000	3000	6	18000
Jan-10	4000	8	32000	0	0	0	3000	6	18000
	0	0	0	0	0	0	4000	8	32000
Jan-12	0	0	0	3000	6	18000		0	0
				3000	8	24000	1000	8	8000
jan -1`8	9000	10				0	1000	8	8000
				0	0	0	9000	10	90000
Jan-20				1000	8	8000	0	0	0
				8000	10	80000	1000	10	10000
			32000			160000
			Endig inventory = 10000

				LIFO
Date	Receipts			Issue ( Cost of goods sold)			Balance
	qty	price	total	qty	price	total	qty	price	total
Jan-01			0			0	8000	6	48000
Jan-05			0	5000	6	30000	3000	6	18000
Jan-10	4000	8	32000	0	0	0	3000	6	18000
			0		0	0	4000	8	32000
Jan-12	0	0	0	4000	8	32000	0	0	0
			0	2000	6	12000	1000	6	6000
Jan-18	9000	10	90000			0	1000	6	6000
			0			0	9000	10	90000
Jan-20				9000	10	90000	1000	6	6000
			ending inventory = 1000*6=6000

				SIMPLE AVG
Date	Receipts			Issue ( Cost of goods sold)			Balance
	qty	price	total	qty	price	total	qty	price	total
Jan-01			0			0	8000	6	48000
Jan-05			0	5000	6	30000	3000	6	18000
Jan-10	4000	8	32000			0	7000	7	49000
			0			0			0
Jan-12			0	6000	7	42000	1000	7	7000
			0			0			0
Jan-18	9000	10	90000			0	10000	8.5	85000
			0			0			0
Jan-20				9000	8.5	76500	1000	8.5	8500
			122000			148500
			ENDING INVENTORY = 8500

BALANCE PRICE ON JAN 10

                = (6+8)/2 = 7

ON JAN 18

   = (7+9)/2 = 8.5

JOURNAL ENTRIES

DATE	PARTICULARS	LF NO	DEBIT	CREDIT
Jan-05	Debtors A/c		75000
	sales A/c			75000
Jan-10	PURCHASES		32000
	TO Creditors			32000
Jan-12	Debtors A/c		90000
	sales A/c			90000
Jan-18	PURCHASES		90000
	TO Creditors			90000
Jan-20	Debtors A/c		135000
	sales A/c			135000