Problem

Effect of inventory cost flow on ending inventory balance and gross marginUniversity Sales...

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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