Effect of inventory cost flow on ending inventory balance and gross margin
University Sales had the following transactions for T-shirts for 2011, its first year of operations.
Jan. 20 | Purchased 450 units@$ 5 | = | $2,250 |
Apr. 21 | Purchased 200 units @$ 6 | = | 1,200 |
July 25 | Purchased 100 units @ $10 | = | 1,000 |
Sept. 19 | Purchased 75 units@$ 8 | = | 600 |
During the year, University Sales sold 725 T-shirts for $20 each.
Required
a. Compute the amount of ending inventory University would report on the balance sheet, assuming the following cost flow assumptions: (1) FIFO, (2) LIFO, and (3) weighted average.
b. Record the above transactions in general journal form and post to T-accounts assuming (1) FIFO, (2) LIFO, and (3) weighted average methods. Use a separate set of journal entries and T-accounts for each method. Assume all transactions are cash transactions.
c. Compute the difference in gross margin between the FIFO and LIFO cost flow assumptions.
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