Q2TI-a - Horngren'S Financial And Managerial Accounting

Question

Serenity Books has the following transactions in August related to merchandise inventory.

Aug. 1 Beginning merchandise inventory, 10 books @ \(15 each

         3 Sold 3 books @ \)20 each

       12 Purchased 8 books @ \(18 each

       15 Sold 9 books @ \)20 each

       20 Purchased 4 books @ \(20 each

       28 Sold 5 books @ \)25 each

a. Determine the cost of goods sold and ending merchandise inventory by preparing a perpetual inventory record using the specific identification method. Assume the following costing information for the books sold during the month:

August 3: 3 books costing \(15 each

August 15: 4 books costing \)15 each and 5 books costing \(18 each

August 28: 2 books costing \)18 each and 3 books costing $20 each

Step-by-Step Solution

Answer

Cost of goods sold: $321

Ending Inventory: $83

Step 1: Specific Identification method

The specific identification method is a cash flow assumption for inventory valuation that value the issued inventory for a specific cost or each item issued. This method is most suitable for business which has unique and expensive inventory to sell. 

 

Examples of businesses that use this method are – Jewelry, Automobiles, Real estate, etc. 

 

Step 2: Computation of COGS and ending inventory under specific identification

Date	Purchase/opening			Sales			Balance
	Units	Cost per unit	Amount	Units	Cost per unit	Amount	Units	Cost per unit	Amount
Aug1	10	$15	$150				10	$15	$150
3				3	$15	$75	7	$15	$105
12	8	$18	$144				7 8	$15 $18	$249
15				4 5	$15 $18	$60 $90	3 3	$15 $18	$99
20	4	$20	$80				3 3 4	$15 $18 $20	$179
28				2 3	$18 $20	$96	3 1 1	$15 $18 $20	$83
Total	22		$374	17		$321	5		$83