Question

(10 points) Merchandise can be shipped FOB (Free on Board) Shipping Point or FOB Destination. If FOB Shipping Point, Circle the appropriate response: Ownership transfers at: Goods in Transit owned by: Transportation Costs paid by: Insurance during transit paid by: Shipping Point Buyer Buyer Buyer Destination Seller Seller Seller If FOB Destination, Circle the appropriate response: Ownership transfers at: Goods in Transit owned by: Transportation Costs paid by: Insurance during transit paid by: Shipping Point Buyer Buyer Buyer Destination Seller Seller Seller (15 points) Fred's Lawn Mower Sales opened on May 1 and during May had in inventory 3 zero turn mowers with 25 horsepower engines: Serial number 001 was added to inventory on May 1 at an amount of $4,500. Serial Number 002 was added to inventory on May 18 at an amount of $6,500. Serial number 003 was added to inventory on May 27 at an amount of $7,000. Components of the mowers were subiect to new tariffs which increased the amount that Fred had to pay for them during May. All are identical except for the color. Fred places them on his lot for sale at a price of $10,000. Fred sold one of them during May at the price of $10,000. Determine Fred's Gross Profit for his Income Statement for May and his remaining inventory for his Balance Sheet at the end of May for each of the following inventory valuation methods: First In First Out, FIFO Last In First Out, LIFO

Answer 1

FOB Shipping PoInt
	Answer
Ownership transfers at	Shipping point
Goods in transit owned by	Buyer
Transportation costs paid by	Buyer
Insurance during transit paid by	Buyer
FOB Destination
	Answer
Ownership transfers at	Destination
Goods in transit owned by	Seller
Transportation costs paid by	Seller
Insurance during transit paid by	Seller

2)

FIFO

In the FIFO method of inventory valuation, items purchased first will be issued for sales/consumption.

In this case item no.001 purchased on May 01 is assumed to be sold of which cost is $4500.

Using FIFO
Sales		$        10,000
Cost of goods sold		$          4,500
Gross profit		$          5,500
Inventory as at May 31
May-18	002	$          6,500
May-27	003	$          7,000
		$        13,500

LIFO

In the LIFO method of inventory valuation, items purchased last will be issued for sales/consumption.

In this case, it is assumed item no.003 purchased on May 27 is sold and cost is $7000.

Gross profit
Sales		$        10,000
Cost of goods sold		$          7,000
Gross profit		$          3,000
Inventory as at May 31
May-18	002	$          4,500
May-27	003	$          6,500
		$        11,000