Q 26E-1 - Horngren'S Financial And Managerial Accounting

Question

Assume that Jump Coffee Shop completed the following periodic inventory transactions for a line of merchandise inventory:

Jun. 1 Beginning merchandise inventory                  17 units @ \( 15 each

      12 Purchase                                                              5 units @ \) 19 each

      20 Sale                                                                     14 units @ \( 37 each

      24 Purchase                                                            11 units @ \) 23 each

      29 Sale                                                                     13 units @ $ 37 each

 

Requirements

1. Compute ending merchandise inventory, cost of goods sold, and gross profit using the FIFO inventory costing method.

Step-by-Step Solution

Answer

Ending Inventory: $222

Cost of goods sold: $381

Gross Profit: $618

Step-by-Step-Solution Step 1: Computation of ending merchandise using FIFO

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

$$\begin{gathered} \mathit{E}\mathit{n}\mathit{d}\mathit{i}\mathit{n}\mathit{g}\mathit{I}\mathit{n}\mathit{v}\mathit{e}\mathit{n}\mathit{t}\mathit{o}\mathit{r}\mathit{y}\mathbf{\left(}\mathit{U}\mathit{n}\mathit{i}\mathit{t}\mathit{s}\mathbf{\right)}\mathbf{=}\mathit{B}\mathit{e}\mathit{g}\mathit{i}\mathit{n}\mathit{n}\mathit{i}\mathit{n}\mathit{g}\mathit{I}\mathit{n}\mathit{v}\mathit{e}\mathit{n}\mathit{t}\mathit{o}\mathit{r}\mathit{y}\mathbf{\left(}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathit{s}\mathbf{\right)}\mathbf{+}\mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathit{P}\mathit{u}\mathit{r}\mathit{c}\mathit{h}\mathit{a}\mathit{s}\mathit{e}\mathit{s}\mathbf{\left(}\mathit{U}\mathit{n}\mathit{i}\mathit{t}\mathit{s}\mathbf{\right)}\mathbf{-}\mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathit{S}\mathit{a}\mathit{l}\mathit{e}\mathit{s}\mathbf{\left(}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathit{s}\mathbf{\right)} \\ \mathbf{=}\mathbf{17}\mathbf{+}\left(5+11\right)\mathbf{-}\left(14+13\right) \\ \mathbf{=}\mathbf{17}\mathbf{+}\mathbf{16}\mathbf{-}\mathbf{27} \\ \mathbf{=}\mathbf{6} \end{gathered}$$

$$\begin{gathered} \mathit{E}\mathit{n}\mathit{d}\mathit{i}\mathit{n}\mathit{g}\mathit{I}\mathit{n}\mathit{v}\mathit{e}\mathit{n}\mathit{t}\mathit{o}\mathit{r}\mathit{y}\mathbf{\left(}\mathit{V}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\mathbf{\right)}\mathbf{=}\mathit{E}\mathit{n}\mathit{d}\mathit{i}\mathit{n}\mathit{g}\mathit{I}\mathit{n}\mathit{v}\mathit{e}\mathit{n}\mathit{t}\mathit{o}\mathit{r}\mathit{y}\mathbf{\left(}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathit{s}\mathbf{\right)}\mathbf{\times }\mathit{S}\mathit{a}\mathit{l}\mathit{e}\mathit{s}\mathit{p}\mathit{r}\mathit{i}\mathit{c}\mathit{e}\mathit{o}\mathit{f}\mathbf{29}\mathit{t}\mathit{h}\mathit{J}\mathit{u}\mathit{n}\mathit{e} \\ \mathbf{=}\mathbf{6}\mathbf{\times }\mathbf{\$}\mathbf{37} \\ \mathbf{=}\mathbf{\$}\mathbf{222} \end{gathered}$$

Step 2: Computation of cost of goods sold

$$\begin{gathered} \mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathit{o}\mathit{f}\mathit{g}\mathit{o}\mathit{o}\mathit{d}\mathit{s}\mathit{s}\mathit{o}\mathit{l}\mathit{d}\mathbf{=}\mathit{B}\mathit{e}\mathit{g}\mathit{i}\mathit{n}\mathit{n}\mathit{i}\mathit{n}\mathit{g}\mathit{I}\mathit{n}\mathit{v}\mathit{e}\mathit{n}\mathit{t}\mathit{o}\mathit{r}\mathit{y}\mathit{V}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\mathbf{+}\mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathit{P}\mathit{u}\mathit{r}\mathit{c}\mathit{h}\mathit{a}\mathit{s}\mathit{e}\mathit{V}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\mathbf{-}\mathit{E}\mathit{n}\mathit{d}\mathit{i}\mathit{n}\mathit{g}\mathit{I}\mathit{n}\mathit{v}\mathit{e}\mathit{n}\mathit{t}\mathit{o}\mathit{r}\mathit{y}\mathit{V}\mathit{a}\mathit{l}\mathit{u}\mathit{e} \\ \mathbf{=}\mathbf{17}\mathbf{\times }\mathbf{\$}\mathbf{15}\mathbf{+}\left(5\times \$19+11\times \$23\right)\mathbf{-}\mathbf{\$}\mathbf{222} \\ \mathbf{=}\mathbf{\$}\mathbf{255}\mathbf{+}\mathbf{\$}\mathbf{348}\mathbf{-}\mathbf{\$}\mathbf{222} \\ \mathbf{=}\mathbf{\$}\mathbf{381} \end{gathered}$$

Step 3: Computation of gross profit

$$\begin{gathered} \mathit{N}\mathit{e}\mathit{t}\mathit{S}\mathit{a}\mathit{l}\mathit{e}\mathit{s}\mathit{R}\mathit{e}\mathit{v}\mathit{e}\mathit{n}\mathit{u}\mathit{e}\mathbf{=}\mathit{S}\mathit{a}\mathit{l}\mathit{e}\mathit{v}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\mathit{o}\mathit{f}\mathbf{20}\mathit{t}\mathit{h}\mathit{J}\mathit{u}\mathit{n}\mathit{e}\mathbf{+}\mathit{S}\mathit{a}\mathit{l}\mathit{e}\mathit{v}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\mathit{n}\mathit{o}\mathit{f}\mathbf{29}\mathit{t}\mathit{h}\mathit{J}\mathit{u}\mathit{n}\mathit{e} \\ \mathbf{=}\mathbf{14}\mathbf{\times }\mathbf{\$}\mathbf{37}\mathbf{+}\mathbf{13}\mathbf{\times }\mathbf{\$}\mathbf{37} \\ \mathbf{=}\mathbf{\$}\mathbf{518}\mathbf{+}\mathbf{\$}\mathbf{481} \\ \mathbf{=}\mathbf{\$}\mathbf{999} \end{gathered}$$