Assume that AB Tire Store completed the following perpetual inventory transactions for a line of tires:

May 1 Beginning merchandise inventory 16 tires @ \( 65 each

11 Purchase 10 tires @ \) 78 each

23 Sale 12 tires @ \( 88 each

26 Purchase 14 tires @ \) 80 each

29 Sale 18 tires @ $ 88 each

Requirements

1. Compute cost of goods sold and gross profit using the FIFO inventory costing method.

Short Answer

Expert verified

Cost of goods sold: $2,140

Gross Profit: $500

Step by step solution

01

Step-by-Step-SolutionStep 1: Computation of cost of goods sold using FIFO

Date
Purchase/openingSalesBalance

Units

Cost per unit

Amount

Units

Cost per unit

Amount

Units

Cost per unit

Amount

May1

16

$65

$1,040

16

$65

$1,040

11

10

$78

$780

16

10

$65

$78

$1,820

23

12

$65

$780

4

10

$65

$78

$1,040

26

14

$80

$1,120

4

10

14

$65

$78

$80

$2,160

29

4

10

4

$65

$78

$80

$1,360

10

$80

$800

Total

40

$2,940

30

$2,140

10

$80

$800

02

Calculation of gross profit

NetRevenue=Salevalueof23rdMay+Salevalueof29thMay=12×$88+18×$88=30×$88=$2,640

GrossProfit=NetRevenue-Costofgoodssold=$2,640-$2,140=30×$88=$500

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Most popular questions from this chapter

Question:Empire State Carpets’s books show the following data. In early 2020, auditors foundthat the ending merchandise inventory for 2017 was understated by \(8,000 and thatthe ending merchandise inventory for 2019 was overstated by \)9,000. The ending merchandiseinventory at December 31, 2018, was correct.

2019

2018

2017

Net Sales Revenue

\( 220,000

\) 162,000

\( 176,000

Cost of Goods Sold:

Beginning Merchandise Inventory

\)22,000

\(29,000

\)46,000

Net cost of purchase

132,000

90,000

76,000

Cost of goods available for sale

154,000

119,000

122,000

Less: Ending Merchandise Inventory

32,000

22,000

29,000

Cost of goods sold

122,000

97,000

93,000

Gross Profit

98,000

65,000

83,000

Operating Expenses

72,000

38,000

48,000

Net Income

\( 26,000

\) 27,000

$ 35,000

Requirements

3. Compute the inventory turnover and days’ sales in inventory using the correctedincome statements for the three years. (Round all numbers to two decimals.)

Question:Refer to Short Exercises S6-4 through S6-6. After completing those exercises, answer the following questions:

Requirements

2. Which inventory costing method produced the highest cost of goods sold?

Question:Boston Cycles started October with 12 bicycles that cost \(42 each. On October 16, Boston bought 40 bicycles at \)68 each. On October 31, Boston sold 34 bicycles for$100 each.

Preparing a perpetual inventory record and journal entries—LIFO

Requirements

2. Journalize the October 16 purchase of merchandise inventory on the account and theOctober 31 sale of merchandise inventory on the account.

Question:Broadway Communications reported the following figures in its annual financial statements:

Cost of Goods Sold $ 18,400

Beginning Merchandise Inventory 560

Ending Merchandise Inventory 450

Compute the rate of inventory turnover and days’ sales in inventory for BroadwayCommunications. (Round to two decimal places.)

Question:New York Pool Supplies’s merchandise inventory data for the year ended December 31, 2019, follow:

Net Sales Revenue\( 58,000

Cost of Goods Sold:

Beginning Merchandise Inventory\) 4,900

Net Cost of Purchases 32,500

Cost of Goods Available for Sale37,400

Less: Ending Merchandise Inventory 4,700

Cost of Goods Sold32,700

Gross Profit \( 25,300

Requirements

1. Assume that the ending merchandise inventory was accidentally overstated by\)1,800. What are the correct amounts for cost of goods sold and gross profit?

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