EX 7-5 Perpetual inventory using LIFO

Beginning inventory, purchases, and sales data for prepaid cell phones for July are as
follows:

Inventory                                   Purchases                                   Sales
July 1     800 units at $45         July 10   500 units at $50     July 12 700 units
                                                         20   450 units at $52             14 300 units
                                                                                                       31 250 units

a. Assuming that the perpetual inventory system is used, costing by the LIFO method,
determine the cost of merchandise sold for each sale and the inventory balance after
each sale, presenting the data in the form illustrated in Exhibit 4.

b. Based upon the preceding data, would you expect the inventory to be higher or
lower using the first-in, first-out method?

Answer:
a.
Prepaid Cell Phones  Purchases Cost of Merchandise Sold Inventory  
Date  
Quantity 
Unit Cost 
Total Cost  
Quantity 
Unit Cost 
Total Cost  
Quantity 
Unit Cost 
Total Cost July 1        800  45  36,000  10  500  50  25,000     800  500  45  50  36,000  25,000  12    500 200 50 45  25,000 9,000  600    45    27,000    14    300 45  13,500  300  45  13,500  20  450  52  23,400     300  450  45  52  13,500  23,400  31    250 52  13,000  300  200  45  52  13,500  10,400  31 Balances      60,500    23,900


b. Since the prices rose from $45 for the July 1 inventory to $52 for the purchase on July 20, we would expect that under first-in, first-out the inventory would be higher.

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