Q7TI-c - 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

 

c. Determine the cost of goods sold and ending merchandise inventory using the weighted-average inventory costing method assuming Serenity Books uses the periodic inventory system.

Step-by-Step Solution

Answer

Ending Inventory: $85

Cost of goods sold: $289

Step 1: Computation of ending mechandise using the weighted average

Using the weighted average, the ending inventory would be valued at average prices.

$\begin{array}{c}\mathbf{A}\mathbf{v}\mathbf{e}\mathbf{r}\mathbf{a}\mathbf{g}\mathbf{e}\mathbf{ }\mathbf{I}\mathbf{n}\mathbf{v}\mathbf{e}\mathbf{n}\mathbf{t}\mathbf{o}\mathbf{r}\mathbf{y}\mathbf{ }\mathbf{C}\mathbf{o}\mathbf{s}\mathbf{t}\mathbf{=}\frac{\mathbf{B}\mathbf{e}\mathbf{g}\mathbf{i}\mathbf{n}\mathbf{n}\mathbf{i}\mathbf{n}\mathbf{g}\mathbf{ }\mathbf{I}\mathbf{n}\mathbf{v}\mathbf{e}\mathbf{n}\mathbf{t}\mathbf{o}\mathbf{r}\mathbf{y}\mathbf{+}\mathbf{T}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{ }\mathbf{P}\mathbf{u}\mathbf{r}\mathbf{c}\mathbf{h}\mathbf{a}\mathbf{s}\mathbf{e}}{\mathbf{T}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{ }\mathbf{I}\mathbf{n}\mathbf{v}\mathbf{e}\mathbf{n}\mathbf{t}\mathbf{o}\mathbf{r}\mathbf{y}}\\ \mathbf{=}\frac{\mathbf{10}\mathbf{\times }\mathbf{\$}\mathbf{15}\mathbf{+}\left(8\times \$18+4\times \$20\right)}{\mathbf{10}\mathbf{+}\mathbf{8}\mathbf{+}\mathbf{4}}\\ \mathbf{=}\frac{\mathbf{\$}\mathbf{150}\mathbf{+}\mathbf{\$}\mathbf{224}}{\mathbf{22}}\\ \mathbf{=}\mathbf{\$}\mathbf{17}\end{array}$

$\begin{array}{c}\mathbf{E}\mathbf{n}\mathbf{d}\mathbf{i}\mathbf{n}\mathbf{g}\mathbf{ }\mathbf{I}\mathbf{n}\mathbf{v}\mathbf{e}\mathbf{n}\mathbf{t}\mathbf{o}\mathbf{r}\mathbf{y}\mathbf{ }\mathbf{\left(}\mathbf{V}\mathbf{a}\mathbf{l}\mathbf{u}\mathbf{e}\mathbf{\right)}\mathbf{=}\mathbf{E}\mathbf{n}\mathbf{d}\mathbf{i}\mathbf{n}\mathbf{g}\mathbf{ }\mathbf{I}\mathbf{n}\mathbf{v}\mathbf{e}\mathbf{n}\mathbf{t}\mathbf{o}\mathbf{r}\mathbf{y}\mathbf{ }\mathbf{\left(}\mathbf{u}\mathbf{n}\mathbf{i}\mathbf{t}\mathbf{s}\mathbf{\right)}\mathbf{\times }\mathbf{A}\mathbf{v}\mathbf{e}\mathbf{r}\mathbf{a}\mathbf{g}\mathbf{e}\mathbf{ }\mathbf{C}\mathbf{o}\mathbf{s}\mathbf{t}\\ \mathbf{=}\mathbf{5}\mathbf{\times }\mathbf{\$}\mathbf{17}\\ \mathbf{=}\mathbf{\$}\mathbf{85}\end{array}$

Step 2: Computation of cost of goods sold