Question

he beginning inventory at Midnight Supplies and data on purchases and sales for a three month period ending March 31 are as follows:

Date		Transaction	Number of Units	Per Unit	Total
Jan.	1	Inventory	7,500	$ 75.00	$ 562,500
	10	Purchase	22,500	85.00	1,912,500
	28	Sale	11,250	150.00	1,687,500
	30	Sale	3,750	150.00	562,500
Feb.	5	Sale	1,500	150.00	225,000
	10	Purchase	54,000	87.50	4,725,000
	16	Sale	27,000	160.00	4,320,000
	28	Sale	25,500	160.00	4,080,000
Mar.	5	Purchase	45,000	89.50	4,027,500
	14	Sale	30,000	160.00	4,800,000
	25	Purchase	7,500	90.00	675,000
	30	Sale	26,250	160.00	4,200,000

	Instructions
1.	Record the inventory, purchases, and cost of goods sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3 , using the first-in, first-out method.
2.	Determine the total sales and the total cost of goods sold for the period. Journalize the entries in the sales and cost of goods 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.
5.	Based upon the preceding data, would you expect the ending inventory using the last-in, first-out method to be higher or lower?

CHART OF ACCOUNTSMidnight SuppliesGeneral Ledger

	ASSETS
110	Cash
111	Petty Cash
120	Accounts Receivable
131	Notes Receivable
132	Interest Receivable
141	Inventory
145	Office Supplies
146	Store Supplies
151	Prepaid Insurance
181	Land
191	Office Equipment
192	Accumulated Depreciation-Office Equipment
193	Store Equipment
194	Accumulated Depreciation-Store Equipment

	LIABILITIES
210	Accounts Payable
221	Notes Payable
222	Interest Payable
231	Salaries Payable
241	Sales Tax Payable

	EQUITY
310	Common Stock
311	Retained Earnings
312	Dividends

	REVENUE
410	Sales
610	Interest Revenue

	EXPENSES
510	Cost of Goods Sold
515	Credit Card Expense
516	Cash Short and Over
520	Salaries Expense
531	Advertising Expense
532	Delivery Expense
533	Insurance Expense
534	Office Supplies Expense
535	Rent Expense
536	Repairs Expense
537	Selling Expenses
538	Store Supplies Expense
561	Depreciation Expense-Office Equipment
562	Depreciation Expense-Store Equipment
590	Miscellaneous Expense
710	Interest Expense

1. Record the inventory, purchases, and cost of goods sold data in a perpetual inventory record similar to the one illustrated in

Exhibit 3

, using the first-in, first-out method. Under FIFO, if units are in inventory at two different costs, enter the units with the LOWER unit cost first in the Cost of Goods Sold Unit Cost column and in the Inventory Unit Cost column.

Date	Purchases			Cost of goods Sold			Inventory
Date	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost
Jan. 1
10
10
28
28
30
Feb. 5
10
10
16
16
28
Mar. 5
5
14
14
25
25
30
30
31	Balances

2. Determine the total sales and the total cost of goods sold for the period. Journalize the entries in the sales and cost of goods 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.

Question not attempted.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

Score: 0/51

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3
4

3. Determine the gross profit from sales for the period.

Answer 1

Solution 1:

Computation of ending inventory COGS under FIFO - Midnight 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	7500	$75.00	$562,500.00	0	$0.00	$0.00	0	$0.00	$0.00	7500	$75.00	$562,500.00
10-Jan	7500	$75.00	$562,500.00	22500	$85.00	$1,912,500.00	0	$0.00	$0.00	7500	$75.00	$562,500.00
										22500	$85.00	$1,912,500.00
28-Jan	7500	$75.00	$562,500.00	0	$0.00	$0.00	7500	$75.00	$562,500.00	18750	$85.00	$1,593,750.00
	22500	$85.00	$1,912,500.00				3750	$85.00	$318,750.00
30-Jan	18750	$85.00	$1,593,750.00	0	$0.00	$0.00	3750	$85.00	$318,750.00	15000	$85.00	$1,275,000.00
5-Feb	15000	$85.00	$1,275,000.00	0	$0.00	$0.00	1500	$85.00	$127,500.00	13500	$85.00	$1,147,500.00
10-Feb	13500	$85.00	$1,147,500.00	54000	$87.50	$4,725,000.00	0	$0.00	$0.00	13500	$85.00	$1,147,500.00
										54000	$87.50	$4,725,000.00
16-Feb	13500	$85.00	$1,147,500.00	0	$0.00	$0.00	13500	$85.00	$1,147,500.00	40500	$87.50	$3,543,750.00
	54000	$87.50	$4,725,000.00				13500	$87.50	$1,181,250.00
28-Feb	40500	$87.50	$3,543,750.00	0	$0.00	$0.00	25500	$87.50	$2,231,250.00	15000	$87.50	$1,312,500.00
5-Mar	15000	$87.50	$1,312,500.00	45000	$89.50	$4,027,500.00	0	$0.00	$0.00	15000	$87.50	$1,312,500.00
										45000	$89.50	$4,027,500.00
14-Mar	15000	$87.50	$1,312,500.00	0	$0.00	$0.00	15000	$87.50	$1,312,500.00	30000	$89.50	$2,685,000.00
	45000	$89.50	$4,027,500.00				15000	$89.50	$1,342,500.00
25-Mar	30000	$89.50	$2,685,000.00	7500	$90.00	$675,000.00	0	$0.00	$0.00	30000	$89.50	$2,685,000.00
										7500	$90.00	$675,000.00
30-mar	30000	$89.50	$2,685,000.00	0	$0.00	$0.00	26250	$89.50	$2,349,375.00	3750	$89.50	$335,625.00
	7500	$90.00	$675,000.00							7500	$90.00	$675,000.00
Total							125250		$10,891,875.00	11250		$1,010,625.00

Solution 2:

Computation of Sales
Date	Sales Qty	Selling Price	Sale Value
28-Jan	11250	$150.00	$1,687,500.00
30-Jan	3750	$150.00	$562,500.00
5-Feb	1500	$150.00	$225,000.00
16-Feb	27000	$160.00	$4,320,000.00
28-Feb	25500	$160.00	$4,080,000.00
14-Mar	30000	$160.00	$4,800,000.00
30-Mar	26250	$160.00	$4,200,000.00
Total	125250		$19,875,000.00

Journal Entries
Date		Debit	Credit
31-Mar	Accounts Receivables Dr	$19,875,000.00
	To Sale Revenue		$19,875,000.00
	(To record sales revenue)
31-Mar	Cost of goods sold Dr	$10,891,875.00
	To Inventory		$10,891,875.00
	(Being inventories sold transferred to cost of goods sold account)

Solution 3:

Gross profit = Sales - Cost of goods sold = $19,875,000 - $10,891,875 = $8,983,125

Solution 4:

Ending inventory cost as of march 31 = $1,010,625

Solution 5:

As prices are increasing in nature, therefore ending inventory using last-in, first-out method to be lower