Chapter 6: Q 20E-2 (page 363)

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
2. Compute cost of goods sold and gross profit using the LIFO inventory costing method.

Short Answer

Expert verified

Cost of goods sold: $2,290

Gross Profit: $350

Step by step solution

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

Date	Purchase/opening			Sales			Balance
	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				10 2	$78 $65	$910	14	$65	$910
26	14	$80	$1,120				14 14	$65 $80	$2,030
29				14 4	$80 $65	$1,380	10	$65	$650
Total	40		$2,940	30		$2,290	10	$65	$650

Calculation of gross profit

$\begin{array}{rcl} N e t R e v e n u e & = & S a l e v a l u e o f 23 r d M a y + S a l e v a l u e o f 29 t h M a y \\ = & 12 \times $ 88 + 18 \times $ 88 \\ = & 30 \times $ 88 \\ = & $ 2, 640 \end{array}$

$\begin{array}{rcl} G r o s s P r o f i t & = & N e t R e v e n u e - C o s t o f g o o d s s o l d \\ = & $ 2, 640 - $ 2, 290 \\ = & $ 350 \end{array}$

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	2019	2018	2017
Net Sales Revenue	\( 212,000	\) 161,000	\( 170,000
Cost of Goods Sold:
Beginning Merchandise Inventory	\)22,000	\(28,000	\)41,000
Net cost of purchase	131,000	100,000	86,000
Cost of goods available for sale	153,000	128,000	127,000
Less: Ending Merchandise Inventory	34,000	22,000	28,000
Cost of goods sold	119,000	106,000	99,000
Gross Profit	93,000	55,000	71,000
Operating Expenses	63,000	28,000	39,000
Net Income	\( 30,000	\) 27,000	$ 32,000

Short Answer

Step by step solution

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

Calculation of gross profit

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