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Question 3 (20 marks) Brilliant Company uses the periodic inventory system. The companys beginning inventory and later purch
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Answer #1

a)

under weighted average cost

cost of goods sold=weighted average unit cost*units sold

units sold is 120 units

weighted average unit cost=total cost of inventory/total units

total cost of inventory=(55*$35)+(80*$28)+(65*32)=$6245

total units=55+80+65=200 units

weighted average unit cost=$6245/200=$31.225 per unit

cost of goods sold=$31.225*120=$3747

value of ending inventory=weighted average unit cost*units remaining

units remaing is 80 units (200-120)

value of ending inventory=$31.225*80=$2498

under FIFO

cost of goods sold= (55*$35)+(65*$28)=$3745

under FIFO principle the oldest inventory must be choosen to the first sales,that is first in first out.on the basis of that out of 120 units sold 55 units is taken from the begining balance at the cost of $35 and the remaining part of 120 units is 65 units (120-55) is taken from the first purchase,that is the purchase at june 17.the cost of these 65 units is $28 per unit.therefore the cost of goods sold will be the sum of total cost of 55 units and 65 units.

value of ending inventory=(15*$28)+(65*$32)

under FIFO principle valuation the remaining inventories are 15 units remaing in the june 17 purachase costing $28 per unit (out of 80 units of that purchase 65 units is sold,so the remaining part will be 15 units) and 65 units remaining in the june 25 purchase costing $32 per unit.the value of ending inventory will be the sum of total of 15 units and 65 units.

b)

entry for purchase

accounts title debit credit
inventory 2240
purchase 2240

purchasing inventory on june 17.inventory is an asset accouint which should be debited when it increases.and purchase is an expense account,it is also a temperory account it should be credited.if the purchase was for cash it is credited on the basis of decrease in cash.and if the purchase was on credit it is on the basis of increase in liability.

the amount is the cost of purchase=$28*80=$2240

journal entry to reflect the sales

accounts title debit credit
cash 2475
sales 2475

the sales amount is $2475 (55*$45).for cash sales cash increases means asset increaes so it should be debited.sales account is revenue account which should be credited when it increases

journal entry to reflect the inventory

accounts title debit credit
cost of goods sold 1540
inventory 1540

the cost of goods sold is $1540 ($28*55).as the sale is done the inventory should be decreased.inventory is an asset account which should be credited when it decreases.cost of goods sold is the expenses for the items sold ,as expenses increases it should be debited.

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