Question

1. FIFO Perpetual Inventory

   The beginning inventory of merchandise at Dunne Co. and data on purchases and sales for a three-month period ending June 30 are as follows:

   Date		Transaction	Number of Units		Per Unit		Total
   Apr. 3		Inventory	36		$150		$5,400
   8		Purchase	72		180		12,960
   11		Sale	48		500		24,000
   30		Sale	30		500		15,000
   May 8		Purchase	60		200		12,000
   10		Sale	36		500		18,000
   19		Sale	18		500		9,000
   28		Purchase	60		220		13,200
   June 5		Sale	36		525		18,900
   16		Sale	48		525		25,200
   21		Purchase	108		240		25,920
   28		Sale	54		525		28,350

   Required:

   1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3, using the first-in, first-out method. Under FIFO, if units are in inventory at two different costs, enter the units with the LOWER unit cost first in the Cost of Merchandise Sold Unit Cost column and in the Inventory Unit Cost column.

   Dunne Co. Schedule of Cost of Merchandise Sold FIFO Method For the three-months ended June 30
   	Purchases			Cost of Merchandise Sold			Inventory
   Date	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost
   Apr. 3								$	$
   Apr. 8		$	$
   Apr. 11					$	$
   Apr. 30
   May 8
   May 10
   May 19
   May 28
   June 5
   June 16
   June 21
   June 28
   June 30	Balances					$			$

   2. Determine the total sales and the total cost of merchandise sold for the period. Journalize the entries in the sales and cost of merchandise sold accounts. Assume that all sales were on account.

   Record sale	Accounts Receivable Cash Fees Earned Merchandise Inventory Sales
   	Accounts Receivable Cash Fees Earned Merchandise Inventory Sales
   Record cost	Accounts Receivable Cash Cost of Merchandise Sold Sales Merchandise Inventory
   	Accounts Payable Accounts Receivable Cash Cost of Merchandise Sold Merchandise Inventory

   3. Determine the gross profit from sales for the period.
   $

   4. Determine the ending inventory cost as of June 30.
   $

   5. Based upon the preceding data, would you expect the inventory using the A method of inventory costing based on the assumption that the most recent merchandise inventory costs should be charged against revenue.last-in, first-out method to be higher or lower?
   

   • Higher
   • Lower

Answer 1

Dunne Co. April'8 Perpetual inventory System: In this system, the cost of sales and invenries are updated on every sales and purchase First in, first out method (FIFO): In this method it is assumed that inventory which is purchased first will be sold first and the inventory will consist of recent purchases. Ans 1: Schedule of cost of good sold FIFO Method For the Three month ended June 30 Purchase Cost of Merchandise Sold inventory Date Quantity Unit Cost Total Cost Quantity Unit Cost Total Cost | Quantity Unit Cost Total Cost April'3 36 $150.00 $5,400.00 72 $180.00 $12,960.00 36 $150.00 $5,400.00 72 $180.00 $12,960.00 108 $18,360.00 April'11 36 $150.00 $5,400.00 60 $180.00 $10,800.00 12 $180.00 $2,160.00 48 $7,560.00 April30 $0.00 30 $180.00 $5,400.00 $180.00 $5,400.00 May's 60 $200.00 $12,000.00 $0.00 30 $180.00 $5,400.00 $0.00 60 $200.00 $12,000.00 $17,400.00 May 10 30 $180.00 $5,400.00 $200.00 $12,000.00 $200.00 $1,200.00 36 $6,600.00 May 19 18 $200.00 $3,600.00 36 $200.00 $ 7,200.00 May'28 6 0 $220.00 $13,200.00 36 $200.00 $7,200.00 60 $220.00 $13,200.00 96 $20,400.00 June'5 36 $200.00 $7,200.00 60 $220.00 $13,200.00 June 16 48 $220.00 $10,560.00 12 $220.00 $2,640.00 30

June 21 108 $240.00 $25,920.00 $220.00 $240.00 $2,640.00 $25,920.00 $28,560.00 $15,840.00 June 28 12 108 120 $2,640.00 66 $10,080.00 $12,720.00 $53,640.0066 12 42 $240.00 $220.00 $240.00 54 June 30300 2 70 $15,840.00 48 270 Ans 2: Total Sales : Date Unit Rate Total April'11 $500 $24,000 April 30 $500 $15,000 May'10 $500 $18,000 May'19 $500 $9,000 June'5 $525 $18,900 June 16 $525 $25,200 June 28 54 $525 $28,350 $1,38,450 Cost of Merchandise Sold $53,640 Journal Entry for Sales and Cost of merchandise sold Particulars Debit Credit Accounts Receivable $1,38,450 Sales $1,38,450 (To Record sales) Cost of Merchandise Sold $53,640 Merchandise inventory $53,640 (To Record Cost of Merchandise Sold)

Ans 3: Sales Less: Cost of Merchandise Sold Gross Profit $1,38,450 ($53,640) $84,810 Ans 4: Ending inventory on June 30 Opening inventory Add: Purchases Less: Cost of Merchandise Sold Closing inventory $5,400 $64,080 ($53,640) $15,840 Ans 5: Based on the preceding data, the input price are in increasing trend. In this case inventory using FIFO will be higher as compared LIFO because the ending inventory in FIFO consists of latest purchases whereas in LIFO ending inventory consists of earlier purchases. Hence, ending inventory using LIFO will lower.