Q2TI-b - 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

 

b. Determine the cost of goods sold and ending merchandise inventory by preparing a perpetual inventory record using the FIFO inventory costing method.

Step-by-Step Solution

Answer

Cost of goods sold: $306

Ending Inventory: $98

Step 1: FIFO inventory costing under perpetual record

FIFO costing is a cost flow assumption of the first-in-first-out order for the issued inventory. Perpetual record is the method of updating inventory accounts continuously for each event. So FIFO inventory under perpetual record is the method of applying FIFO assumption for continuous updating of inventory records.  

Step 2: Computation of COGS and Ending Inventory under FIFO

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				7 2	$15 $18	$141	6	$18	$108
20	4	$20	$80				6 4	$18 $20	$188
28				5	$18	$90	1 4	$18 $20	$98
Total	22		$374	17		$306	5		$98