Q7TI-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 using the FIFO inventory costing method assuming Serenity Books uses the periodic inventory system.

Step-by-Step Solution

Answer

Ending Inventory: $98

Cost of goods sold: $276

Step 1: Ending inventory using FIFO periodic inventory

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

$\begin{array}{c}\mathbf{E}\mathbf{n}\mathbf{d}\mathbf{i}\mathbf{n}\mathbf{g}\mathbf{ }\mathbf{I}\mathbf{n}\mathbf{v}\mathbf{e}\mathbf{n}\mathbf{t}\mathbf{o}\mathbf{r}\mathbf{y}\mathbf{ }\mathbf{\left(}\mathbf{U}\mathbf{n}\mathbf{i}\mathbf{t}\mathbf{s}\mathbf{\right)}\mathbf{=}\mathbf{B}\mathbf{e}\mathbf{g}\mathbf{i}\mathbf{n}\mathbf{n}\mathbf{i}\mathbf{n}\mathbf{g}\mathbf{ }\mathbf{I}\mathbf{n}\mathbf{v}\mathbf{e}\mathbf{n}\mathbf{t}\mathbf{o}\mathbf{r}\mathbf{y}\mathbf{ }\mathbf{\left(}\mathbf{u}\mathbf{n}\mathbf{i}\mathbf{t}\mathbf{s}\mathbf{\right)}\mathbf{+}\mathbf{T}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{ }\mathbf{P}\mathbf{u}\mathbf{r}\mathbf{c}\mathbf{h}\mathbf{a}\mathbf{s}\mathbf{e}\mathbf{s}\mathbf{ }\mathbf{\left(}\mathbf{U}\mathbf{n}\mathbf{i}\mathbf{t}\mathbf{s}\mathbf{\right)}\mathbf{-}\mathbf{T}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{ }\mathbf{S}\mathbf{a}\mathbf{l}\mathbf{e}\mathbf{s}\mathbf{ }\mathbf{\left(}\mathbf{u}\mathbf{n}\mathbf{i}\mathbf{t}\mathbf{s}\mathbf{\right)}\\ \mathbf{=}\mathbf{10}\mathbf{+}\left(8+4\right)\mathbf{-}\left(3+9+5\right)\\ \mathbf{=}\mathbf{10}\mathbf{+}\mathbf{12}\mathbf{-}\mathbf{17}\\ \mathbf{=}\mathbf{5}\end{array}$

$\begin{array}{c}\mathbf{E}\mathbf{n}\mathbf{d}\mathbf{i}\mathbf{n}\mathbf{g}\mathbf{ }\mathbf{I}\mathbf{n}\mathbf{v}\mathbf{e}\mathbf{n}\mathbf{t}\mathbf{o}\mathbf{r}\mathbf{y}\mathbf{ }\mathbf{\left(}\mathbf{V}\mathbf{a}\mathbf{l}\mathbf{u}\mathbf{e}\mathbf{\right)}\mathbf{=}\mathbf{P}\mathbf{u}\mathbf{r}\mathbf{c}\mathbf{h}\mathbf{a}\mathbf{s}\mathbf{e}\mathbf{ }\mathbf{c}\mathbf{o}\mathbf{s}\mathbf{t}\mathbf{ }\mathbf{f}\mathbf{o}\mathbf{r}\mathbf{ }\mathbf{20}\mathbf{t}\mathbf{h}\mathbf{ }\mathbf{A}\mathbf{u}\mathbf{g}\mathbf{+}\mathbf{P}\mathbf{u}\mathbf{r}\mathbf{c}\mathbf{h}\mathbf{a}\mathbf{s}\mathbf{e}\mathbf{ }\mathbf{c}\mathbf{o}\mathbf{s}\mathbf{t}\mathbf{ }\mathbf{f}\mathbf{o}\mathbf{r}\mathbf{ }\mathbf{o}\mathbf{n}\mathbf{e}\mathbf{ }\mathbf{u}\mathbf{n}\mathbf{i}\mathbf{t}\mathbf{ }\mathbf{f}\mathbf{o}\mathbf{r}\mathbf{ }\mathbf{12}\mathbf{t}\mathbf{h}\mathbf{ }\mathbf{A}\mathbf{u}\mathbf{g}\\ \\ \mathbf{=}\mathbf{4}\mathbf{\times }\mathbf{\$}\mathbf{20}\mathbf{+}\mathbf{1}\mathbf{\times }\mathbf{\$}\mathbf{18}\\ \mathbf{=}\mathbf{\$}\mathbf{98}\end{array}$

Step 2: Computation of cost of goods sold

$\begin{array}{c}\mathbf{C}\mathbf{o}\mathbf{s}\mathbf{t}\mathbf{ }\mathbf{o}\mathbf{f}\mathbf{ }\mathbf{g}\mathbf{o}\mathbf{o}\mathbf{d}\mathbf{s}\mathbf{ }\mathbf{s}\mathbf{o}\mathbf{l}\mathbf{d}\mathbf{=}\mathbf{B}\mathbf{e}\mathbf{g}\mathbf{i}\mathbf{n}\mathbf{n}\mathbf{i}\mathbf{n}\mathbf{g}\mathbf{ }\mathbf{I}\mathbf{n}\mathbf{v}\mathbf{e}\mathbf{n}\mathbf{t}\mathbf{o}\mathbf{r}\mathbf{y}\mathbf{ }\mathbf{V}\mathbf{a}\mathbf{l}\mathbf{u}\mathbf{e}\mathbf{+}\mathbf{T}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{ }\mathbf{P}\mathbf{u}\mathbf{r}\mathbf{c}\mathbf{h}\mathbf{a}\mathbf{s}\mathbf{e}\mathbf{ }\mathbf{V}\mathbf{a}\mathbf{l}\mathbf{u}\mathbf{e}\mathbf{-}\mathbf{E}\mathbf{n}\mathbf{d}\mathbf{i}\mathbf{n}\mathbf{g}\mathbf{ }\mathbf{I}\mathbf{n}\mathbf{v}\mathbf{e}\mathbf{n}\mathbf{t}\mathbf{o}\mathbf{r}\mathbf{y}\mathbf{ }\mathbf{V}\mathbf{a}\mathbf{l}\mathbf{u}\mathbf{e}\\ \mathbf{=}\mathbf{10}\mathbf{\times }\mathbf{\$}\mathbf{15}\mathbf{+}\left(8\times \$18+4\times \$20\right)\mathbf{-}\mathbf{\$}\mathbf{98}\\ \mathbf{=}\mathbf{\$}\mathbf{150}\mathbf{+}\mathbf{\$}\mathbf{224}\mathbf{-}\mathbf{\$}\mathbf{98}\\ \mathbf{=}\mathbf{\$}\mathbf{276}\end{array}$