The beginning inventory for Midnight Supplies and data on purchases and sales for a three-month period are shown in Problem 7-1A. Instructions 1. Determine the inventory on March 31 and the cost of merchandise sold for the three-month period, using the first-in, first-out method and the periodic inventory system. 2. Determine the inventory on March 31 and the cost of merchandise sold for the three-month period, using the last-in, first-out method and the periodic inventory system. 3. Determine the inventory on March 31 and the cost of merchandise sold for the three-month period, using the weighted average cost method and the periodic inventory system. Round the weighted average unit cost to the nearest cent. 4. Compare the gross profit and the March 31 inventories, using the following column headings:

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(1) To determine Determine value of inventory and cost of merchandise sold using first in first out method under periodic inventory system. Explanation Periodic Inventory System: Periodic inventory system is a system, in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period. First-in-First-Out: In First-in-First-Out method, the costs of the initially purchased items are considered as cost of goods sold, for the items which are sold first. The value of the ending inventory consists of the recent purchased items. Last-in-Last-Out: In Last-in-First-Out method, the costs of last purchased items are considered as the cost of goods sold, for the items which are sold first. The value of the closing stock consists of the initial purchased items. Weighted-average cost method: Under Weighted average cost method, the company calculates a new average cost after every purchase is made. It is determined by dividing the cost of goods available for sale by the units on hand. The value of ending inventory is calculated as follows: Ending Inventory ( FIFO ) = ( 7 , 500 units × $ 90 ) + ( 3 , 750 units × $ 89.50 ) = $ 657 , 000 + $ 335 , 625 = $ 1 , 010 , 625 (2) To determine Determine value of inventory and cost of merchandise sold using last in first out method under periodic inventory system. (3) To determine Determine value of inventory and cost of merchandise sold using weighted average method under periodic inventory system. (4) To determine Compare gross profit and ending inventories of all the three methods.

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Financial Accounting

15th Edition

Carl Warren + 2 others

Publisher: Cengage Learning

ISBN: 9781337272124

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BuyFind

Financial Accounting

15th Edition

Carl Warren + 2 others

Publisher: Cengage Learning

ISBN: 9781337272124

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Answer 3

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Answer 4

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Answer 5

(1)

To determine

Determine value of inventory and cost of merchandise sold using first in first out method under periodic inventory system.

Explanation of Solution

Periodic Inventory System: Periodic inventory system is a system, in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.

First-in-First-Out: In First-in-First-Out method, the costs of the initially purchased items are considered as cost of goods sold, for the items which are sold first. The value of the ending inventory consists of the recent purchased items.

Last-in-Last-Out: In Last-in-First-Out method, the costs of last purchased items are considered as the cost of goods sold, for the items which are sold first. The value of the closing stock consists of the initial purchased items.

Weighted-average cost method: Under Weighted average cost method, the company calculates a new average cost after every purchase is made. It is determined by dividing the cost of goods available for sale by the units on hand.

The value of ending inventory is calculated as follows:

Ending Inventory(FIFO) =(7,500 units×$90)+(3,750 units×$89.50)= $657,000+$335,625=$1,010,625

Answer 6

(2)

To determine

Determine value of inventory and cost of merchandise sold using last in first out method under periodic inventory system.

Answer 7

(3)

To determine

Determine value of inventory and cost of merchandise sold using weighted average method under periodic inventory system.

Answer 8

(4)

To determine

Compare gross profit and ending inventories of all the three methods.

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