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Question & Answer 28072015 Inventory

The Shirt Shop had various purchases of T-shirts throughout 2016, their first year of operations. They purchased 400 units in January for $3,200, 200 units in April for $2,000, 280 units in July for $3,640, and 90 units in September for $1,350. During the year they sold 810 T-shirts for $30 each. The document provides the ending inventory and cost of goods sold calculations for FIFO, LIFO, and weighted average costing methods. It also shows the journal entries and T-accounts for each method. The gross margin is higher under FIFO costing compared to LIFO costing.

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490 views5 pages

Question & Answer 28072015 Inventory

The Shirt Shop had various purchases of T-shirts throughout 2016, their first year of operations. They purchased 400 units in January for $3,200, 200 units in April for $2,000, 280 units in July for $3,640, and 90 units in September for $1,350. During the year they sold 810 T-shirts for $30 each. The document provides the ending inventory and cost of goods sold calculations for FIFO, LIFO, and weighted average costing methods. It also shows the journal entries and T-accounts for each method. The gross margin is higher under FIFO costing compared to LIFO costing.

Uploaded by

Green Stone
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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EXERCISE 5-5A

The Shirt Shop had the following transactions for T-shirts for 2016, its first
year of operation.
Jan 20 Purchased 400 units @ $8 = $3,200
Apr 21 Purchased 200 units @ $10 = 2,000
Jul 25 Purchased 280 units @ $13 = 3,640
Sept 19 Purchased 90 units @ $15 = 1,350

During the year, The Shirt Shop sold 810 T-shirts for $30 each.

a. Compute the amount of ending inventory The Shirt Shop 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.

The Shirt Shop


Summary of Purchase Transactions

1/20 Purchased Units 400 @ $8 = $3,200


4/21 Purchased Units 200 @ 10 = 2,000
7/25 Purchased Units 280 @ 13 = 3,640
9/19 Purchased Units 90 @ 15 = 1,350
Available for Sale 970 10,190

a. (1)
FIFO Units Unit Cost Total
Ending Inventory
From 9/19 Purchase 90 @ $15 1350
From 7/25 Purchase 70 @ 13 910
Total Ending Inventory 160 2260
a. (2)
LIFO Units Unit Cost Total
Ending Inventory
From 1/20 Purchase 160 @ $8 1280
Total Ending Inventory 160 1280

a. (3)
Weighted Average
Total Cost  Total Units = Cost per Unit
$10,190 970 10.51

Ending Inventory 160 units @ $10.51 = $1,681.60

EXERCISE 5-5A (cont.)


b.
Note: The purchase entries are the same for all three methods.
The Shirt Shop
General Journal

Date Account Title Debit Credit


Jan. 20 Merchandise Inventory $3,200
Cash $3,200
Apr. 21 Merchandise Inventory 2,000
Cash 2,000
July 25 Merchandise Inventory 3,640
Cash 3,640
Sept. 19 Merchandise Inventory 1,350
Cash 1,350
(1) FIFO Sales and Cost of Goods Sold
2016 Cash (810 x $30) 24,300
Sales Revenue 24,300
2016 Cost of Goods Sold 7930
Merchandise Inventory 7930
(2) LIFO Sales and Cost of Goods Sold
2016 Cash 24,300
Sales Revenue 24,300
2016 Cost of Goods Sold 8,910
Merchandise Inventory 8910
(3) Weighted Average Sales and Cost of Goods Sold
2016 Cash 24300
Sales Revenue 24300
2016 Cost of Goods Sold 8,508.40
Merchandise Inventory 8,508.40

EXERCISE 5-5A b. (cont.)

(1) FIFO
Cash Sales Revenue
2016 24300 1/20 3200 2016 24300
4/21 2000
7/25 3640
9/19 1350 Cost of Goods Sold
Bal. 14110 2016 7930
Bal.
Merchandise Inventory
1/20 3200 7930
4/21 2000
7/25 3640
9/19 1350 2016
Bal. 2260
(2) LIFO
Cash Sales Revenue
2016 24300 1/20 3200 24300
4/21 2000
7/25 3640
9/19 1350 Cost of Goods Sold
Bal. 14110 2016 8910
Bal.

Merchandise Inventory
1/20 3200 8910
4/21 2000
7/25 3640
9/19 1350
Bal 1280

EXERCISE 5-5A b. (cont.)

(3) Weighted Average

Cash Sales Revenue


2016 24300 1/20 3200 24300
4/21 2000
7/25 3640
9/19 1350 Cost of Goods Sold
Bal. 14110 2016 8,508.40
Bal.
Merchandise Inventory
1/20 3200 8508.40
4/21 2000
7/25 3640
9/19 1350
Bal 1681.60
EXERCISE 5-5A (cont.)

c.
FIFO
Sales ( 810 units @ $30) 24,300
Cost of Goods Sold
Cost of Goods Avail. for Sale* $10,190
Less: Ending Inventory 2,260
Cost of Goods Sold 7,930
Gross Margin $ 16,370

LIFO
Sales (810 units @ $20) $24,300
Cost of Goods Sold
Cost of Goods Avail. for Sale* $10,190
Less: Ending Inventory 1,280
Cost of Goods Sold 8,910
Gross Margin $15,390

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