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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Perpetual inventory using FIFO

Assume that the business in Exercise 7-9 maintains a perpetual inventory system. Determine the cost of merchandise sold for each sale and the inventory balance after each sale, assuming the first-in, first-out method. Present the data in the form illustrated in Exhibit 3.

To determine

Perpetual Inventory System:

Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases, and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time.

First-in-First-Out method:

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 cost of merchandise sold is calculated by adding all the total cost of merchandise sold during the month. The value of the ending inventory consists of the recent purchased items.

To determine: cost of merchandise sold for each sale and inventory balance as on December 31.

Explanation

Calculate the cost of merchandise sold and ending inventory.

FIFO
Purchases Cost of merchandise sold Inventory
Date Quantity Unit cost Total cost Quantity Unit cost Total cost Quantity Unit cost Total cost
1-Jan             4,000 $20 $80,000
19-Apr       2,500 $20 $50,000 1,500 $20 $30,000
30-Jun 6,000 $24 $144,000       1,500 $20

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