The beginning inventory for Midnight Supplies and data on purchases and sales for a three-month period are shown in Problem 7-1A.

The beginning inventory for Midnight Supplies and data on purchases and sales for a three-month period are shown in Problem 7-1A.

Instructions

1. Determine the inventory on March 31 and the cost of merchandise sold for the three-month period, using the first-in, first-out method and the periodic inventory system.

2. Determine the inventory on March 31 and the cost of merchandise sold for the three-month period, using the last-in, first-out method and the periodic inventory system.

3. Determine the inventory on March 31 and the cost of merchandise sold for the three-month period, using the weighted average cost method and the periodic inventory system. Round the weighted average unit cost to the nearest cent.

4. Compare the gross profit and the March 31 inventories, using the following column headings:

FIFO LIFO Weighted Average Sales Cost of merchandise sold Gross profit Inventory, March 31

Answer:

1. First-In, First-Out Method

Merchandise inventory, March 31................................................ $ 1,010,625

Cost of merchandise sold........................................................... 10,891,875

Supporting computations

Inventory:

Units in beginning inventory and purchased................................. 136,500

Units sold................................................................................ 125,250

Units in ending inventory........................................................... 11,250

7,500 units @ $90.00............................................................ $ 675,000

3,750 units @ $89.50............................................................ 335,625

11,250 units.......................................................................... $1,010,625

Cost of merchandise sold:

Beginning inventory, January 1................................................... $ 562,500

Purchases................................................................................. 11,340,000

Merchandise available for sale................................................... $11,902,500

Ending inventory, March 31......................................................... 1,010,625

Cost of merchandise sold........................................................... $10,891,875

* $1,912,500 + $4,725,000 + $4,027,500 + $675,000

2. Last-In, First-Out Method

Inventory, March 31..................................................................... $ 881,250

Cost of merchandise sold........................................................... 11,021,250

Supporting computations

Inventory:

7,500 units @ $75.00............................................................ $562,500

3,750 units @ $85.00............................................................ 318,750

11,250 units......................................................................... $881,250

Cost of merchandise sold:

Beginning inventory, January 1................................................... $ 562,500

Purchases................................................................................. 11,340,000

Merchandise available for sale................................................... $11,902,500

Ending inventory, March 31......................................................... 881,250

Cost of merchandise sold............................................................$11,021,250

3. Weighted Average Cost Method

Inventory, March 31.........................................................$ 981,000

Cost of merchandise sold................................................ 10,921,500

Supporting computations

$11,902,500

136,500 units

Inventory:

11,250 units × $87.20 = $981,000

Cost of merchandise sold:

Beginning inventory, January 1..........................................$ 562,500

Purchases..................................................................... 11,340,000

Merchandise available for sale..........................................$11,902,500

Ending inventory, March 31............................................. 981,000

Cost of merchandise sold................................................ $10,921,500

4.Weighted

FIFO LIFO Average

Sales$19,875,000 $19,875,000 $19,875,000

Cost of merchandise sold 10,891,875 11,021,250 10,921,500

Gross profit $ 8,983,125 $ 8,853,750 $ 8,953,500

Inventory, March 31 $ 1,010,625 $ 881,250 $ 981,000

* ($1,687,500 + $562,500 + $225,000 + $4,320,000 + $4,080,000 + $4,800,000 + $4,200,000)

The beginning inventory for Midnight Supplies and data on purchases and sales for a three-month period are shown in Problem 7-1A

The beginning inventory for Midnight Supplies and data on purchases and sales for a three-month period are shown in Problem 7-1A.

Instructions

1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 5, using the weighted average cost method.

2. Determine the total sales, the total cost of merchandise sold, and the gross profit from sales for the period.

3. Determine the ending inventory cost as of March 31.

Answer:

1.

Unit Total TotalTotal

Quantity Cost Cost Quantity Unit Cost Cost Quantity Unit Cost Cost

 Jan. 17,500 75.00 562,500

10 22,500 85.00   1,912,50030,000 82.50 2,475,000

2811,250 82.50 928,125 18,750 82.50 1,546,875

303,750 82.50 309,375 15,000 82.50 1,237,500

 Feb. 51,500 82.50 123,750 13,500 82.50 1,113,750

10 54,000 87.50   4,725,00067,500 86.50 5,838,750

1627,000 86.50 2,335,500 40,500 86.50 3,503,250

2825,500 86.50 2,205,750 15,000 86.50 1,297,500

 Mar. 5 45,000 89.50   4,027,50060,000 88.75 5,325,000

1430,000 88.75 2,662,500 30,000 88.75 2,662,500

25 7,500 90.00   675,00037,500 89.00 3,337,500

3026,250 89.00 2,336,250 11,250 89.00 1,001,250

31  Balances10,901,250 1,001,250

2. Total sales………………………………………………………………… $19,875,000

Total cost of merchandise sold……………………………………… 10,901,250

Gross profit……………………………………………………………… $ 8,973,750

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

3. $1,001,250 (11,250 × $89.00)

The beginning inventory at Midnight Supplies and data on purchases and sales for a three-month period are shown in Problem 7-1A.

The beginning inventory at Midnight Supplies and data on purchases and sales for a three-month period are shown in Problem 7-1A.

Instructions

1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 4, using the last-in, first-out method.

2. Determine the total sales, the total cost of merchandise sold, and the gross profit from sales for the period.

3. Determine the ending inventory cost as of March 31.

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

2811,250 85.00 956,250 7,500 75.00 562,500

11,250 85.00 956,250

303,750 85.00 318,750 7,500 75.00 562,500

7,500 85.00 637,500

 Feb. 51,500 85.00 127,500 7,500 75.00 562,500

6,000 85.00 510,000

10 54,000 87.50 4,725,0007,500 75.00 562,500

6,000 85.00 510,000

54,000 87.50 4,725,000

1627,000 87.50 2,362,500 7,500 75.00 562,500

6,000 85.00 510,000

27,000 87.50 2,362,500

2825,500 87.50 2,231,250 7,500 75.00 562,500

6,000 85.00 510,000

1,500 87.50 131,250

 Mar. 5 45,000 89.50 4,027,5007,500 75.00 562,500

6,000 85.00 510,000

1,500 87.50 131,250

45,000 89.50 4,027,500

1430,000 89.50 2,685,000 7,500 75.00 562,500

6,000 85.00 510,000

1,500 87.50 131,250

15,000 89.50 1,342,500

25 7,500 90.00 675,0007,500 75.00 562,500

6,000 85.00 510,000

1,500 87.50 131,250

15,000 89.50 1,342,500

7,500 90.00 675,000

307,500 90.00 675,000 7,500 75.00 562,500

15,000 89.50 1,342,500 3,750 85.00 318,750

1,500 87.50 131,250

2,250 85.00 191,250

31  Balances11,021,250 881,250

2. Total sales.......................................................................................$19,875,000

Total cost of merchandise sold......................................................... 11,021,250

Gross profit.................................................................................... $ 8,853,750

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

$4,800,000 + $4,200,000

3. $881,250 = [(7,500 units × $75) + (3,750 units × $85)]

= $562,500 + $318,750

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.