Question

Question 1 (20 marks) Brilliant Company uses the periodic inventory system. The company’s beginning inventory and later purchases of inventory during June 2020 were as below: Jun 01: Beginning inventory, 45 units @ $25 per unit. Jun 17: Inventory purchased, 80 units @ $28 per unit. Jun 25: Inventory purchased, 65 units @ $32 per unit. Brilliant company sold 100 units during the month of June 2020.

Required: a.Calculate the cost of goods sold and ending inventory for June 2020 using both the Weighted Average cost and First in, first out (FIFO) method. (14 marks)

b.Also record the journal entries for the June 17 purchase of inventory and when 55 units from this lot were sold for $45 each. Assume both purchase of inventory and its sale are on account. (6 marks)

Answer 1

a) Periodic inventory system updates inventory records only at the end of reporting period concerned. Under weighted average inventory method, total value of purchases shall be divided by total number of units purchased to calculate unit cost. Cost of goods sold shall be calculated by multiplying number of units sold by unit cost calculated. FIFO stands for First In First Out which means that cost of goods sold must consider cost of those goods earlier. As a result, ending inventory will contain cost of units recently purchased. DATA TABLE: Units Rate Amount $1,125 [45 units x $25] 45 $25 80 Beg. Balance Purchases: On Jun. 17 On Jun. 25 Available for sale Units sold Ending inventory units $28 $32 65 190 100 $2,240 [80 units x $28] $2,080 [65 units x $32] $5,445 90 [190 - 100]

Under Weighted Average (Mean) Method: Ending inventory of 90 units shall consist of 90 units from entire lot. So, Available for sale - Dollar value Available for sale - Units Weighted Average cost per unit # of units in ending inventory Cost of Ending inventory Available for sale Cost of Goods Sold $5,445 [Ref: Data Table] 190 (Ref: Data Table] $28.6579 ($5445 / 190] 90 $2,579 [90 units x $28.6579] $5,445 [Ref: Data Table] $2,866 ($5445 - $2579] Under FIFO: Ending inventory of 90 units shall consist of 65 units from Jun. 25 & bal. 25 units from Jun. 17's purchase as below: From Jun. 17 purchase From Jun. 25 purchase Cost of Ending inventory Available for sale Cost of Goods Sold $700 [25 units x $28] $2,080 [65 units x $32] $2,780 $5,445 [Ref: Data Table] $2,665 $5445 - $2780]

b) Date Credit Jun. 17 [80 units x $28] $2,240 Jun. 17 [55 units x $45] Account Titles Debit Merchandise Inventory $2,240 Accounts Payable (To record merchandise inventory purchased on account) Accounts Receivable $2,475 Sales Revenue (To record merchandise sold on account) Cost of Goods Sold $1,540 Merchandise Inventory (To record cost of merchandise sold) $2,475 Jun. 17 [55 units x $28] $1,540