Accounting Problem Solving

Effect of inventory cost flow on ending inventory balance and gross margin

Refer to the attached documents and use the template to annotate the answers.  

EXERCISE 5-5A

The Shirt Shop

Summary of Purchase Transactions

1/20

Purchased Units

@

=

4/21

Purchased Units

@

=

7/25

Purchased Units

@

=

9/19

Purchased Units

@

=

Available for Sale

a. (1)

FIFO

Units

Unit Cost

Total

Ending Inventory

From 9/19 Purchase

@

From 7/25 Purchase

@

Total Ending Inventory

a. (2)

LIFO

Units

Unit Cost

Total

Ending Inventory

From 1/20 Purchase

@

Total Ending Inventory

a. (3)

Weighted Average

Total Cost

Total Units

=

Cost per Unit

Ending Inventory

160 units @ $10.51 =

$1,681.60

EXERCISE 5-5A (cont.)

b.

Note: The purchase entries are the same for all three methods.

The Shirt Shop

General Journal

Date

Account Title

Debit

Credit

Jan. 20

Merchandise Inventory

Cash

Apr. 21

Merchandise Inventory

Cash

July 25

Merchandise Inventory

Cash

Sept. 19

Merchandise Inventory

Cash

(1) FIFO Sales and Cost of Goods Sold

2016

Cash (810 x $30)

Sales Revenue

2016

Cost of Goods Sold

Merchandise Inventory

(2) LIFO Sales and Cost of Goods Sold

2016

Cash

Sales Revenue

2016

Cost of Goods Sold

Merchandise Inventory

(3) Weighted Average Sales and Cost of Goods Sold

2016

Cash

Sales Revenue

2016

Cost of Goods Sold

Merchandise Inventory

EXERCISE 5-5A b. (cont.)

(1) FIFO

Cash

Sales Revenue

2016

1/20

2016

4/21

Bal.

7/25

9/19

Cost of Goods Sold

Bal. 6,010

2016

Bal.

Merchandise Inventory

1/20

4/21

7/25

9/19

2016

Bal.

(2) LIFO

Cash

Sales Revenue

2016 16,200

Cost of Goods Sold

Bal.

2016

Bal. 8,910

Merchandise Inventory

EXERCISE 5-5A b. (cont.)

(3) Weighted Average

Cash

Sales Revenue

2016 16,200

Cost of Goods Sold

Bal. 6,010

2016 8,513

Bal. 8,513

Merchandise Inventory

EXERCISE 5-5A (cont.)

c.

FIFO

Sales ( units @ $20)

Cost of Goods Sold

Cost of Goods Avail. for Sale*

Less: Ending Inventory

Cost of Goods Sold

Gross Margin

$ 8,270

LIFO

Sales (810 units @ $20)

$16,200

Cost of Goods Sold

Cost of Goods Avail. for Sale*

Less: Ending Inventory

Cost of Goods Sold

Gross Margin