Question

The beginning inventory at Funky Party Supplies and data on purchases and sales for a three-month period ending March 31, 2016, are as follows:

Date		Transaction	Number of Units	Per Unit	Total
Jan.	1	Inventory	2,700	$50.00	$135,000
	10	Purchase	7,300	58.00	423,400
	28	Sale	4,050	100.00	405,000
	30	Sale	1,200	100.00	120,000
Feb.	5	Sale	500	100.00	50,000
	10	Purchase	17,000	60.00	1,020,000
	16	Sale	9,200	105.00	966,000
	28	Sale	8,000	105.00	840,000
Mar.	5	Purchase	14,300	61.60	880,880
	14	Sale	10,300	105.00	1,081,500
	25	Purchase	3,200	62.00	198,400
	30	Sale	8,000	105.00	840,000

	Instructions
1.	Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 4, using the first-in, first-out method.
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 and date your journal entry March 31. Refer to the Chart of Accounts for exact wording of account titles.
3.	Determine the gross profit from sales for the period.
4.	Determine the ending inventory cost as of March 31, 2016.
5.	Based upon the preceding data, would you expect the inventory using the last-in, first-out method to be higher or lower?

Answer 1

Solution 1:

Computation of ending inventory COGS under FIFO - Funky Party Supplies
Date	Beginning Inventory			Purchase			Cost of Goods Sold			Ending Inventory
	Qty	Rate	Amount	Qty	Rate	Amount	Qty	Rate	Amount	Qty	Rate	Amount
1-Jan	2700	$50.00	$135,000.00	0	$0.00	$0.00	0	$0.00	$0.00	2700	$50.00	$135,000.00
10-Jan	2700	$50.00	$135,000.00	7300	$58.00	$423,400.00	0	$0.00	$0.00	2700	$50.00	$135,000.00
										7300	$58.00	$423,400.00
28-Jan	2700	$50.00	$135,000.00	0	$0.00	$0.00	2700	$50.00	$135,000.00	5950	$58.00	$345,100.00
	7300	$58.00	$423,400.00				1350	$58.00	$78,300.00
30-Jan	5950	$58.00	$345,100.00	0	$0.00	$0.00	1200	$58.00	$69,600.00	4750	$58.00	$275,500.00
5-Feb	4750	$58.00	$275,500.00	0	$0.00	$0.00	500	$58.00	$29,000.00	4250	$58.00	$246,500.00
10-Feb	4250	$58.00	$246,500.00	17000	$60.00	$1,020,000.00	0	$0.00	$0.00	4250	$58.00	$246,500.00
										17000	$60.00	$1,020,000.00
16-Feb	4250	$58.00	$246,500.00	0	$0.00	$0.00	4250	$58.00	$246,500.00	12050	$60.00	$723,000.00
	17000	$60.00	$1,020,000.00				4950	$60.00	$297,000.00
28-Feb	12050	$60.00	$723,000.00	0	$0.00	$0.00	8000	$60.00	$480,000.00	4050	$60.00	$243,000.00
5-Mar	4050	$60.00	$243,000.00	14300	$61.60	$880,880.00	0	$0.00	$0.00	4050	$60.00	$243,000.00
										14300	$61.60	$880,880.00
14-Mar	4050	$60.00	$243,000.00	0	$0.00	$0.00	4050	$60.00	$243,000.00	8050	$61.60	$495,880.00
	14300	$61.60	$880,880.00				6250	$61.60	$385,000.00
25-Mar	8050	$61.60	$495,880.00	3200	$62.00	$198,400.00	0	$0.00	$0.00	8050	$61.60	$495,880.00
										3200	$62.00	$198,400.00
30-Mar	8050	$61.60	$495,880.00	0	$0.00	$0.00	8000	$61.60	$492,800.00	50	$61.60	$3,080.00
	3200	$62.00	$198,400.00							3200	$62.00	$198,400.00
Total							41250		$2,456,200.00	3250		$201,480.00

Solution 2:

Computation of Sales
Date	Sales Qty	Selling Price	Sale Value
28-Jan	4050	$100.00	$405,000.00
30-Jan	1200	$100.00	$120,000.00
5-Feb	500	$100.00	$50,000.00
16-Feb	9200	$105.00	$966,000.00
28-Feb	8000	$105.00	$840,000.00
14-Mar	10300	$105.00	$1,081,500.00
30-Mar	8000	$105.00	$840,000.00
Total	41250		$4,302,500.00

Cost of goods sold = $2,456,200

Journal Entries
Date		Debit	Credit
31-Mar	Accounts Receivables Dr	$4,302,500.00
	To Sale Revenue		$4,302,500.00
	(To record sales revenue)
31-Mar	Cost of goods sold Dr	$2,456,200.00
	To Inventory		$2,456,200.00
	(Being inventories sold transferred to cost of goods sold account)

Solution 3:

Gross profit = Sales - Cost of goods sold = $4,302,500 - $2,456,200 = $1,846,300

Solution 4:

Ending inventory cost at March 31, 2016 = $201,480

Solution 5:

As units rate are increasing in nature, therefore ending inventory using LIFO to be lower.