The Shirt Shop had the following transactions for T-shirts for 2016, its first y

Question

The Shirt Shop had the following transactions for T-shirts for 2016, its first year of operations:

Jan. 20 Purchased 420 units @ $8 = $ 3,360

Apr. 21 Purchased 220 units @ $10 = 2,200

July 25 Purchased 300 units @ $13 = 3,900

Sept. 19 Purchased 110 units @ $15 = 1,650

During the year, The Shirt Shop sold 870 T-shirts for $24 each.

a. Compute the amount of ending inventory The Shirt Shop would report on the balance sheet, assuming the following cost flow assumptions: (1) FIFO, (2) LIFO, and (3) weighted average. (Round cost per unit to 2 decimal places and final answers to the nearest whole dollar amount.)

b. Record the above transactions in general journal form and post to T-accounts using (1) FIFO, (2) LIFO, and (3) weighted average. Use a separate set of journal entries and T-accounts for each method. Assume all transactions are cash transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

c. Create a general journal entry using FIFO; Sales and Cost of goods sold

d. Create a general journal entry using LIFO; sales and Cost of goods sold

e. Create a general journal entry for the weighted average of sales and cost of goods sold

Explanation / Answer

a) compute the amount of ending inventory

1) Ending inventory as per FIFO

In FIFO assumption we will take out the inventory which is purchase first and second purchase and so on

If 870 unit is sold then it will be 420 units of Jan 20 inventory, then 220 unit of April 21 inventory and 230 units of July 25 inventory

COGS will be = 420**+220*10+230*13=$8,550

Ending inventory will be =70*13+110*15=$2,560

2) As per LIFO assumption, the inventory purchased last will be taken out first

If 870 units is sold then 110 unit of Sept 19, 300 unit of july 25,220 unit of April 21 and 240 unit of Jan 20

COGS will be= 110*15+300*13+220*10+240*8=$9,670

Ending inventory will be =180*8=$1,440

c) weighted average= Total cost/unit purchased=11,110/1050=10.58

COGS will be =870*10.58=$9205

Ending inventory=180*10.58=$1904

b) Record the transaction in journal form

Below is the purchase entry of the Shirt Shop

Journal entry using FIFO, sales and COGS

Journal entry using LIFO, sales and COGS

Journal entry using Weighted, sales and COGS

T Accounts for each method

1) FIFO

Cash Account

Dr Cr

Sales

Dr Cr

COGS

Dr Cr

Inventory Account

Dr Cr

2) LIFO

Cash Account

Dr Cr

Sales

Dr Cr

COGS

Dr Cr

Inventory Account

Dr Cr

3) Weighted average

Cash Account

Dr Cr

Sales

Dr Cr

COGS

Dr Cr

Inventory Account

Dr Cr

For C, D and E answers are already included in the B part ...see the journal entry for FIFO, LIFO and Weighed average. If you have any query then let me know

Date unit purchase unit cost total cost Jan 20 420 8 $3,360 April 21 220 10 $2200 July 25 300 13 $3,900 Sept 19 110 15 $1,650 total 1,050 11,110

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