Q 26E-2 - 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

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

Step-by-Step Solution

Answer

Ending Inventory: $90

Cost of goods sold: $513

Gross Profit: $486

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

Using LIFO, the ending inventory would be valued at historical prices.

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

$\begin{array}{rcl}\mathit{E}\mathit{n}\mathit{d}\mathit{i}\mathit{n}\mathit{g}\mathit{I}\mathit{n}\mathit{v}\mathit{e}\mathit{n}\mathit{t}\mathit{o}\mathit{r}\mathit{y}\mathbf{\left(}\mathit{V}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\mathbf{\right)}& \mathbf{=}& \mathit{E}\mathit{n}\mathit{d}\mathit{i}\mathit{n}\mathit{g}\mathit{I}\mathit{n}\mathit{v}\mathit{e}\mathit{n}\mathit{t}\mathit{o}\mathit{r}\mathit{y}\mathbf{\left(}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathit{s}\mathbf{\right)}\mathbf{\times }\mathit{B}\mathit{e}\mathit{g}\mathit{i}\mathit{n}\mathit{n}\mathit{i}\mathit{n}\mathit{g}\mathit{I}\mathit{n}\mathit{v}\mathit{e}\mathit{n}\mathit{t}\mathit{o}\mathit{r}\mathit{y}\mathit{P}\mathit{r}\mathit{i}\mathit{c}\mathit{e}\\ & \mathbf{=}& \mathbf{6}\mathbf{\times }\mathbf{\$}\mathbf{15}\\ & \mathbf{=}& \mathbf{\$}\mathbf{90}\end{array}$

Step 2: Computation of cost of goods sold

$\begin{array}{rcl}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathit{o}\mathit{f}\mathit{g}\mathit{o}\mathit{o}\mathit{d}\mathit{s}\mathit{s}\mathit{o}\mathit{l}\mathit{d}& \mathbf{=}& \mathit{B}\mathit{e}\mathit{g}\mathit{i}\mathit{n}\mathit{n}\mathit{i}\mathit{n}\mathit{g}\mathit{I}\mathit{n}\mathit{v}\mathit{e}\mathit{n}\mathit{t}\mathit{o}\mathit{r}\mathit{y}\mathit{V}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\mathbf{+}\mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathit{P}\mathit{u}\mathit{r}\mathit{c}\mathit{h}\mathit{a}\mathit{s}\mathit{e}\mathit{V}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\mathbf{-}\mathit{E}\mathit{n}\mathit{d}\mathit{i}\mathit{n}\mathit{g}\mathit{I}\mathit{n}\mathit{v}\mathit{e}\mathit{n}\mathit{t}\mathit{o}\mathit{r}\mathit{y}\mathit{V}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\\ & \mathbf{=}& \mathbf{17}\mathbf{\times }\mathbf{\$}\mathbf{15}\mathbf{+}\mathbf{(}\mathbf{5}\mathbf{\times }\mathbf{\$}\mathbf{19}\mathbf{+}\mathbf{11}\mathbf{\times }\mathbf{\$}\mathbf{23}\mathbf{)}\mathbf{-}\mathbf{\$}\mathbf{90}\\ & \mathbf{=}& \mathbf{\$}\mathbf{255}\mathbf{+}\mathbf{\$}\mathbf{348}\mathbf{-}\mathbf{\$}\mathbf{90}\\ & \mathbf{=}& \mathbf{\$}\mathbf{513}\end{array}$

Step 3: Computation of gross profit

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

$\begin{array}{rcl}\mathit{G}\mathit{r}\mathit{o}\mathit{s}\mathit{s}\mathit{P}\mathit{r}\mathit{o}\mathit{f}\mathit{i}\mathit{t}& \mathbf{=}& \mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathit{S}\mathit{a}\mathit{l}\mathit{e}\mathit{v}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\mathbf{-}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathit{o}\mathit{f}\mathit{g}\mathit{o}\mathit{o}\mathit{d}\mathit{s}\mathit{s}\mathit{o}\mathit{l}\mathit{d}\\ & \mathbf{=}& \mathbf{\$}\mathbf{999}\mathbf{-}\mathbf{\$}\mathbf{513}\\ & \mathbf{=}& \mathbf{\$}\mathbf{486}\end{array}$