The beginning inventory of merchandise at Dunne Co. and data on purchases and sales for a three-month period ending June 30 are as follows:

The beginning inventory of merchandise at Dunne Co. and data on purchases and sales for a three-month period ending June 30 are as follows:

Date Transaction Number of Units Per   Unit Total Apr. 3 Inventory 25 $1,200 $ 30,000 8 Purchase 75 1,240 93,000 11 Sale 40 2,000 80,000 30 Sale 30 2,000 60,000 May 8 Purchase 60 1,260 75,600  10 Sale 50 2,000 100,000 19 Sale 20 2,000 40,000 28 Purchase 80 1,260 100,800 June 5 Sale 40 2,250 90,000  16 Sale 25 2,250 56,250 21 Purchase 35 1,264 44,240 28 Sale 44 2,250 99,000

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 on June 30.

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

 Apr. 325 1,200 30,000

8 75 1,240 93,00025 1,200 30,000

75 1,240 93,000

1125 1,200 30,000

15 1,240 18,600 60 1,240 74,400

3030 1,240 37,200 30 1,240 37,200

 May 8 60 1,260 75,60030 1,240 37,200

60 1,260 75,600

1030 1,240 37,200

20 1,260 25,200 40 1,260 50,400

1920 1,260 25,200 20 1,260 25,200

28 80 1,260 100,80020 1,260 25,200

80 1,260 100,800

 June 520 1,260 25,200

20 1,260 25,200 60 1,260 75,600

1625 1,260 31,500 35 1,260 44,100

21 35 1,264 44,24035 1,260 44,100

35 1,264 44,240

2835 1,260 44,100

9 1,264 11,376 26 1,264 32,864

30  Balances310,77632,864

2. Accounts Receivable525,250

Sales525,250

Cost of Merchandise Sold310,776

Merchandise Inventory310,776

*$525,250 = $80,000 + $60,000 + $100,000 + $40,000 + $90,000 + $56,250 + $99,000

3. $214,474 ($525,250 – $310,776)

4. $32,864 (26 units × $1,264)

5. Because the prices rose from $1,200 for the April 3 inventory to $1,264 for the 

purchase on June 21, we would expect that under last-in, first-out, the inventory 

would be lower.