Q 20E-2 - Horngren'S Financial And Managerial Accounting

Question

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.

Step-by-Step Solution

Answer

Cost of goods sold: $2,290

Gross Profit: $350

Step-by-Step-Solution Step 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

 

Step 2: Calculation of gross profit

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

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