Question

​Pete’s Tennis Shop has the following transactions related to its top-selling Wilson tennis racket for the month of August. Pete’s Tennis Shop uses a periodic inventory system:

Cost per Unit Date August 1 August 4 August 11 August 13 August 20 August 26 August 29 Transactions Units Total Cost $141 $ 1,128 1,310 1,210 1,221 $ 4,869 Beginning inventory Sale ($130 each) Purchase Sale ($145 each) 8 5 10 8 10 131 Prchase 121 Sale ($155 each) Purchase

1. Calculate ending inventory and cost of goods sold at August 31, using the specific identification method.

(For the specific identification method, the August 4 sale consists of rackets from beginning inventory, the. August 13 sale consists of rackets from the August 11 purchase, and the August 26 sale consists of one racket from beginning inventory and 10 rackets from the August 20 purchase.) 2. Using FIFO, calculate ending inventory and cost of goods sold at August 31.

3. Using LIFO, calculate ending inventory and cost of goods sold at August 31.  

4. Using weighted-average cost, calculate ending inventory and cost of goods sold at August 31. (Round intermediate and final answers to 2 decimal places).

5. Calculate sales revenue and gross profit under each of the four methods. (Round eighted-average cost amounts to 2 decimal places)

6. Comparing FIFO and LIFO, which one provides the more meaningful measure of ending inventory? (FIFO or LIFO)

7. If Pete’s chooses to report inventory using LIFO, record the LIFO adjusting journal entry for Augist 31.  

Answer 1

Calculate the requirements as follows: 1 Total units 2 Units sold 3 Units in ending inventory 4 Weighted average cost per unit $124.85 6 1 7 Ending inventory 8 Cost of goods sold $1.765 $3,104 10 2 11 Ending inventory 12 Cost of goods sold 13 $1,705 $3.164 14 3 15 Ending inventory 16 Cost of goods sold $2.045 $2,824 18 4 19 Ending inventory 20 Cost of goods sold $1,872.69 $2.996.31

Calculate value in above table as follows: в A 1 Total units =8+10+10+11 2 Units sold =5+8+11 I=B1-B2 4 Weighted average cost per unit =4869/B1 6 1 7 Ending inventory 8 Cost of goods sold =4869-B8 =(5*141)+(8*131)+(1.141)+(10*121) =4869-B12 =(8*141)+((10*131)+(B2-8-10)*121) 10 2 11 Ending inventory 12 Cost of goods sold 13 14 3 15 Ending inventory 16 Cost of goods sold =(11*111)+(10*121)+((B2-11-10)*131) 17 18 4 19 Ending inventory 20 Cost of goods sold =B3*B4 =B2%B4 -

5. Calculate sales revenue and gross profit under each of the four methods as follows: B A 1 Particulars 2 Sales Revenue (A) 3 Less: Cost of Goods Sold (B) 4 Gross Profit (A-B) C Specific Identification FIFO 3515 3515 3104 3164 411 351 D LIFO 3515 2824 691 E Weighted Average 3515 2996.31 518.69 Calculate value in above table as follows: D А 1 Particulars Specific Identification FIFO LIFO Weighted Average 2 Sales Revenue (A) =(5*130)+(8*145)*11*155) =(5*130)+(8*145)+(11*155) =(5*130)+(8*145)+(11*155) =(5*130)+(8*145)+(11*155) 3 Less: Cost of Goods Sold (B) 3104 3164 2824 2996.31 4 Gross Profit (A-B) J=B2-B3 =C2-C3 =D2-D3 =E2-E3

FIFO method provides more meaningful measure of ending inventory as it provides the inventory which is most recently purchased at its cost. Therefore, FIFO is a more meaningful measure of ending inventory.

7. Record LIFO adjustment entry as follows: ДА В 1 Date Account Title & Explanation 2 31-Aug Inventory Cost of Goods Sold C Debit $340 D | Credit $340 Calculate values in above table as follows: A В. 1 Date Account Title & Explanation 2 43708 Inventory Cost of Goods Sold C Debit =2045-1705 D Credit =C2