Concept explainers
Inventory:
Inventory refers to the stock or goods which will be sold in the near future and thus is an asset for the company. It comprises of the raw materials which are yet to be processed, the stock which is still going through the process of production and it also includes completed products that are ready for sale. Thus inventory is the biggest and the important source of income and profit for the business.
Perpetual Inventory System:
In perpetual inventory system, there is a continuous recording of transactions as and when they take place that is purchase and sale transactions are recorded whenever they occur.
First in First out:
In case of First in, first out method, also known as FIFO method, the inventory which was bought first will also be the first one to be taken out.
Cost of ending inventory under the perpetual inventory system on the basis of the FIFO method.
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FINANCIAL ACCT.FUND.(LOOSELEAF)
- LIFO perpetual inventory The beginning inventory for Dunne Co. and data on purchases and sales for a three-month period are shown in Problem 6-1B. Instructions 1. Record the inventory, purchases, and cost of goods sold data in a perpetual inventory record similar to the one illustrated in Exhibit 4, using the last-in, first-out method. 2. Determine the total sales, the total cost of goods sold, and the gross profit from sales for the period. 3. Determine the ending inventory cost on June 30.arrow_forwardPerpetual inventory using FIFO Beginning inventory, purchases, and sales for Item Zeta9 are as follows: Oct. 1 Inventory 175 units at 30 7 Sale 155 units 15 Purchase 200 units at 33 24 Sale 140 units Assuming a perpetual inventory system and using the first-in, first-out (FIFO) method, determine (A) the cost of goods sold on October 24 and (B) the inventory on October 31.arrow_forwardPerpetual inventory using LIFO Beginning inventory, purchases, and sales for Item 88-HX are as follows: July 1 Inventory 90 units at 54 8 Sale 75 units 15 Purchase 125 units at 60 27 Sale 80 units Assuming a perpetual inventory system and using the last-in, first-out (LIFO) method, determine (A) the cost of goods sold on July 27 and (B) the inventory on July 31.arrow_forward
- Comparison of Inventory Costing Methods—Periodic System Bitten Companys inventory records show 600 units on hand on October 1 with a unit cost of $5 each. The following transactions occurred during the month of October: All expenses other than cost of goods sold amount to $3,000 for the month. The company uses an estimated tax rate of 30% to accrue monthly income taxes. Required Prepare a chart comparing cost of goods sold and ending inventory using the periodic system and the following costing methods: What does the Total column represent? Prepare income statements for each of the three methods. Will the company pay more or less tax if it uses FIFO rather than LIFO? How much more or less?arrow_forwardCommunication Golden Eagle Company began operations on April 1 by selling a single product. Data on purchases and sales for the year are as follows: Purchases: Sales: The president of the company, Connie Kilmer, has asked for your advice on which inventory cost flow method should be used for the 32,000-unit physical inventory that was taken on December 31. The company plans to expand its product line in the future and uses the periodic inventory system. Write a brief memo to Ms. Kilmer comparing and contrasting the LIFO and FIFO inventory cost flow methods and their potential impacts on the companys financial statements.arrow_forwardADJUSTMENT FOR MERCHANDISE INVENTORY USING T ACCOUNTS: PERIODIC INVENTORY SYSTEM Sandra Owens owns a business called Sandras Sporting Goods. Her beginning inventory as of January 1, 20--, was 33,000, and her ending inventory as of December 31, 20--, was S36,000. Set up T accounts for Merchandise Inventory and Income Summary and perform the year-end adjustment for Merchandise Inventory.arrow_forward
- SERIES B PROBLEM PERPETUAL: LIFO AND MOVING-AVERAGE Vozniak Company began business on January 1, 20-1. Purchases and sales during the month of January follow. REQUIRED Calculate the total amount to be assigned to cost of goods sold for January and the ending inventory on January 31, under each of the following methods: 1. Perpetual LIFO inventory method. 2. Perpetual moving-average inventory method.arrow_forwardWORK SHEET EXTENSIONS FOR MERCHANDISE INVENTORY ADJUSTMENTS: PERIODIC INVENTORY SYSTEM The following partial work sheet is taken from Kevins Gift Shop for the year ended December 31, 20--. The ending merchandise inventory is 50,000. 1. Complete the Adjustments columns for the merchandise inventory. 2. Extend the merchandise inventory to the Adjusted Trial Balance and Balance Sheet columns. 3. Extend the remaining accounts to the Adjusted Trial Balance and Income Statement columns. 4. Prepare a cost of goods sold section from the partial work sheet.arrow_forwardWORK SHEET EXTENSIONS FOR MERCHANDISE INVENTORY ADJUSTMENTS: PERIODIC INVENTORY SYSTEM The following partial work sheet is taken from Nicoles Gift Shop for the year ended December 31, 20--. The ending merchandise inventory is 37,000. 1. Complete the Adjustments columns for the merchandise inventory. 2. Extend the merchandise inventory to the Adjusted Trial Balance and Balance Sheet columns. 3. Extend the remaining accounts to the Adjusted Trial Balance and Income Statement columns. 4. Prepare a cost of goods sold section from the partial work sheet.arrow_forward
- ADJUSTMENT FOR MERCHANDISE INVENTORY USING T ACCOUNTS: PERIODIC INVENTORY SYSTEM Matt Henry owns a business called Henrys Sporting Goods. His beginning inventory as of January 1, 20--, was 45,000, and his ending inventory as of December 31, 20--, was 57,000. Set up T accounts for Merchandise Inventory and Income Summary and perform the year-end adjustment for Merchandise Inventory.arrow_forwardRecording Sale and Purchase Transactions Jordan Footwear sells athletic shoes and uses the perpetual inventory system. During June, Jordan engaged in the following transactions its first month of operations: a. On June1, Jordan purchased, on credit, 100 pairs of basketball shoes and 210 pairs of running shoes with credit terms of 2/10, n/30. The basketball shoes were purchased at a cost of $85 per pair, and the running shoes were purchased at a cost of $60 per pair. Jordan paid Mole Trucking $310 cash to transport the shoes from the manufacturer to Jordans warehouse, shipping terms were F.O.B. shipping point, and the items were shipped on June 1 and arrived on June 4. b. On June 2, Jordan purchased 88 pairs of cross-training shoes for cash. The shoes cost Jordan $65 per pair. c. On June 6, Jordan purchased 125 pairs of tennis shoes on credit. Credit terms were 2/10, n/25. The shoes were purchased at a cost of $45 per pair. d. On June 10, Jordan paid for the purchase of the basketball shoes and the running shoes in Transaction a. e. On June 12, Jordan determined that $585 of the tennis shoes were defective. Jordan returned the defective merchandise to the manufacturer. f. On June 18, Jordan sold 50 pairs of basketball shoes at $116 per pair, 92 pairs of running shoes for S85 per pair, 21 pairs of cross-training shoes for $100 per pair, and 48 pairs of tennis shoes for $68 per pair. All sales were for cash. The cost of the merchandise sold was $13,295. No sales returns are expected. g. On June 21, customers returned 10 pairs of the basketball shoes purchased on June 18. The cost of the merchandise returned was $850. h. On June 23, Jordan sold another 20 pairs of basketball shoes, on credit, for $116 per pair and 15 pairs of cross-training shoes for $100 cash per pair. The cost of the merchandise sold was $2,675. i. On June 30, Jordan paid for the June 6 purchase of tennis shoes minus the return on June 12. j. On June 30, Jordan purchased 60 pairs of basketball shoes, on credit, for S85 each. The shoes were shipped F.O.B. destination and arrived at Jordan on July 3. Required: 1. Prepare the journal entries to record the sale and purchase transactions for Jordan during June 2019. 2. Assuming operating expenses of $5,300 and income taxes of $365, prepare Jordans income statement for June 2019.arrow_forwardInventory Costing Methods On June 1, Welding Products Company had a beginning inventory of 210 cases of welding rods that had been purchased for S88 per case. Welding Products purchased 1,150 cases at a cost of $95 per case on June 3. On June 19, the company purchased another 950 cases at a cost of $112 per case. Sales data for the welding rods are: Welding Products uses a perpetual inventory system, and the sales price of the welding rods was $130 per case. Required: 1. Compute the cost of ending inventory and cost of goods sold using the FIFO method. 2. Compute the cost of ending inventory and cost of goods sold using the LIFO method. 3. Compute the cost of ending inventory and cost of goods sold using the average cost method. ( Note: Use four decimal places for per-unit calculations and round all other numbers to the nearest dollar.) 4. CONCEPTUAL CONNECTION Assume that operating expenses are $21,600 and Welding Products has a 30% tax rate. How much will the cash paid for income taxes differ among the three inventory methods? 5. CONCEPTUAL CONNECTION Compute Welding Products' gross profit ratio (rounded to two decimal places) and inventory turnover ratio (rounded to three decimal places) under each of the three inventory costing methods. How would the choice of inventory costing method affect these ratios?arrow_forward
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