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

The 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 merchandise 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 merchandise sold for the period. Journalize the entries in the sales and cost of merchandise sold accounts. Assume that all sales were on account.

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 inventory using the last-in, first-out method to be higher or lower?

Answer:

1.

Unit Total Unit Total Unit Total

Quantity Cost Cost Quantity Cost Cost Quantity Cost Cost

 Jan. 17,500 75.00 562,500

10 22,500 85.00 1,912,5007,500 75.00 562,500

22,500 85.00 1,912,500

287,500 75.00 562,500

3,750 85.00 318,750 18,750 85.00 1,593,750

303,750 85.00 318,750 15,000 85.00 1,275,000

 Feb. 51,500 85.00 127,500 13,500 85.00 1,147,500

10 54,000 87.50 4,725,00013,500 85.00 1,147,500

54,000 87.50 4,725,000

1613,500 85.00 1,147,500

13,500 87.50 1,181,250 40,500 87.50 3,543,750

2825,500 87.50 2,231,250 15,000 87.50 1,312,500

 Mar. 5 45,000 89.50 4,027,50015,000 87.50 1,312,500

45,000 89.50 4,027,500

1415,000 87.50 1,312,500

15,000 89.50 1,342,500 30,000 89.50 2,685,000

25 7,500 90.00 675,00030,000 89.50 2,685,000

7,500 90.00 675,000

3026,250 89.50 2,349,375 3,750 89.50 335,625

7,500 90.00 675,000

31  Balances10,891,8751,010,625

2. Accounts Receivable19,875,000

Sales19,875,000

Cost of Merchandise Sold 10,891,875

Merchandise Inventory10,891,875

*$19,875,000 = $1,687,500 + $562,500 + $225,000 + $4,320,000 + $4,080,000 + $4,800,000 + $4,200,000

3. $8,983,125 ($19,875,000 – $10,891,875)

4. $1,010,625 ($335,625 + $675,000)

5. Because the prices rose from $75 for the January 1 inventory to $90 for the purchase

on March 25, we would expect that under the last-in, first-out method, the inventory 

would be lower.