Question

Johnson Corporation began 2013 with inventory of 26,000 units of its only product. The units cost $8 each. The company uses a periodic inventory system and the LIFO cost method. The following transactions occurred during 2013: * Purchased 130,000 additional units at a cost of $10 per unit. Terms of the purchases were 2/10,n/30, and 100% of the net purchases were paid for within the 10-day discount period. The company uses the gross method to record purchase discounts. The merchandise was purchased f.o.b. shipping point and freight charges of $.40 per unit were paid by Johnson. 6- 2,600 units purchased during the year were returned to suppliers for credit. Johnson was also given credit for the freight charges of $.40 per unit it had paid on the original purchase. The units were defective and were returned two days after they were received Sales for the year totaled 125,000 units at $17 per unit. d. On December 28, 2013, Johnson purchased 6,600 additional units at $12 each. The goods were shipped f.o.b. destination and arrived at Johnson's warehouse on January 4, 2014 28,400 units were on hand at the end of 2013. Required: 1. Determine ending inventory and cost of goods sold for 2013. (Calculate the discount based on the net purchases during the period.) Ending inventory Cost of goods sold 2. Assuming that operating expenses other than those indicated in the above transactions amounted to $182,000, determine income before income taxes for 2013. Income before income taxes

Answer 1

Requirements:

1)

Particulars	Amount($)
a)Ending inventory	232480
b)Cos of goods sold	1275000

2)Income before Income taxes:$668000

1) Determination of the ending inventory and cost of goods sold for 2013 and Cost of goods sold

a.Cost of ending inventory

Formula

Cost of Ending inventory

=[Beginning inventory*unit cost]+[Ending inventory*New price after discount]

=[26000*$8]+[2400*$10.2]

=$208000+$24480

=$232480

Working notes[WN]:

1)Ending inventory from current purchase

Ending inventory

=(Ending - beginning)inventory units

=28400-26000

=2400 units

2) computation of new price after discount

New price after discount

=Shipping point and freight charges+purchase price after discount

=$0.40+$9.8

=$10.2

Note:

Purchase price after discount

=Purchase price of additional units *(100% - discount %)

=$10*(100%-2%)

=$9.8

b.Cost of goods sold

=Sales for the year*new price after discount

=125000 units*$10.2

=$1275000

2)Determination of Income before income taxes

Particulars	Amount($)
Sales{125000*$17}	2125000
Less:
Cost of goods sold	(1275000)
Gross profit	850000
Less:
Operating expenses	(182000)
Income before income taxes	668000

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