Chapter 6: Q7TI-a (page 350)

Serenity Books has the following transactions in August related to merchandise inventory.
Aug. 1 Beginning merchandise inventory, 10 books @ $15 each
3 Sold 3 books @ $20 each
12 Purchased 8 books @ $18 each
15 Sold 9 books @ $20 each
20 Purchased 4 books @ $20 each
28 Sold 5 books @ $25 each
a. Determine the cost of goods sold and ending merchandise inventory using the FIFO inventory costing method assuming Serenity Books uses the periodic inventory system.

Short Answer

Expert verified

Ending Inventory: $98

Cost of goods sold: $276

Step by step solution

Ending inventory using FIFO periodic inventory

Using FIFO, the ending inventory would be valued at the current prices.

$\begin{matrix} E n d i n g I n v e n t o r y (U n i t s) = B e g i n n i n g I n v e n t o r y (u n i t s) + T o t a l P u r c h a s e s (U n i t s) - T o t a l S a l e s (u n i t s) \\ = 10 + (8 + 4) - (3 + 9 + 5) \\ = 10 + 12 - 17 \\ = 5 \end{matrix}$

$\begin{matrix} E n d i n g I n v e n t o r y (V a l u e) = P u r c h a s e c o s t f o r 20 t h A u g + P u r c h a s e c o s t f o r o n e u n i t f o r 12 t h A u g \\ = 4 \times $ 20 + 1 \times $ 18 \\ = $ 98 \end{matrix}$

Computation of cost of goods sold

$\begin{matrix} C o s t o f g o o d s s o l d = B e g i n n i n g I n v e n t o r y V a l u e + T o t a l P u r c h a s e V a l u e - E n d i n g I n v e n t o r y V a l u e \\ = 10 \times $ 15 + (8 \times $ 18 + 4 \times $ 20) - $ 98 \\ = $ 150 + $ 224 - $ 98 \\ = $ 276 \end{matrix}$

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	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

	Number of T-shirts	Dollar Amount
Beginning Balance
Add: Purchases
Less: Cost of goods sold
Ending Balance

	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

Ending inventory using FIFO periodic inventory

Computation of cost of goods sold

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