PR 7-1A FIFO perpetual inventory

The beginning inventory at Keats Office Supplies and data on purchases and sales for a
three-month period are as follows:

Date           Transaction         Numberof Units       Per Unit          Total
Mar. 1          Inventory                 300                        $20            $ 6,000
      10           Purchase                  500                          21             10,500
      28           Sale                         400                          35              14,000
      30           Sale                         250                          40              10,000
Apr. 5           Sale                           80                          40              3,200
      10           Purchase                  450                          22              9,900
     16            Sale                         250                          42              10,500
      28           Sale                         150                          45              6,750
May 5           Purchase                 175                          24              4,200
      14           Sale                         160                          50              8,000
      25           Purchase                  150                          25              3,750
      30           Sale                         140                          50              7,000

Instructions
1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory
record similar to the one illustrated in Exhibit 3, using the first-in, first-out method.
2. Determine the total sales and the total cost of merchandise sold for the period. Journalize
the entries in the sales and cost of merchandise sold accounts. Assume that all
sales were on account.
3. Determine the gross profit from sales for the period.
4. Determine the ending inventory cost.
5. Based upon the preceding data, would you expect the inventory using the last-in,
first-out method to be higher or lower?

Answer:
1.

 Purchases Cost of Merchandise Sold Inventory  
Date  
Quantity 
Unit Cost 
Total Cost  
Quantity 
Unit Cost 
Total Cost  
Quantity 
Unit Cost 
Total Cost Mar. 1        300  20  6,000  10  500  21  10,500     300  500  20  21  6,000  10,500  28     300  100  20  21  6,000  2,100   400   21   8,400  30     250  21  5,250  150  21  3,150 Apr. 5     80  21  1,680  70  21  1,470  10  450  22  9,900     70  450  21  22  1,470  9,900  16     70  180  21  22  1,470  3,960   270   22   5,940  28     150  22  3,300  120  22  2,640 May 5  175  24  4,200     120  175  22  24  2,640  4,200  14     120  40  22  24  2,640  960   135   24   3,240  25  150  25  3,750     135  150  24  25  3,240  3,750  30     135  5  24  25  3,240 125    145    25    3,625  31 Balances      30,725    3,625
2. Accounts Receivable................................. 59,450  
                 Sales......................................................  59,450  
Cost of Merchandise Sold......................... 30,725  
                Merchandise Inventory.........................  30,725
3. $28,725 ($59,450 – $30,725)
4. $3,625 (145 units × $25)  
5. Since the prices rose from $20 for the March 1 inventory to $25 for the purchase on May 25, we would expect that under last-in, first-out the inventory would be lower.  

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