The following information for Dorado Corporation relates to the three-month peri
ID: 2542262 • Letter: T
Question
The following information for Dorado Corporation relates to the three-month period ending September 30.
Dorado expects to purchase 190,000 units of inventory in the fourth quarter of the current calendar year at a cost of $33 per unit, and to have on hand 61,000 units of inventory at year-end. Dorado uses the last-in, first-out (LIFO) method to account for inventory costs.
a. Determine the cost of goods sold and gross profit amounts Dorado should record for the three months ending September 30.
(COGS does NOT = 14,730,000)
(GP does NOT = 5,730,000)
b. Prepare journal entries to reflect these amounts.
b1. Record the entry for sales revenue.
b2. Record the entry for cost of good sold.
(COGS does NOT = 14,730,000)
Units Price per Unit Sales 465,000 $ 44 Beginning inventory 43,000 26 Purchases 440,000 32 Ending inventory 18,000 ?Explanation / Answer
Step 1: We should find out at what price the closing inventory should be valued, if LIFO method of inventory valuation is followed?
Qty
Price per unit
Opening inventory
43,000 units
$26
Purchases
440,000 units
$32
Sold
465,000 units
$44
Ending inventory
18,000 units
?
LIFO method
Purchases
Cost of goods sold
Stock
Qty
Price
Value
Qty
Price
Value
Qty
Price
Value
Opening balance
-
-
-
-
-
-
43,000
26
1,118,000
Purchased
440,000
32
14,080,000
-
-
-
43,000
26
1,118,000
440,000
32
14,080,000
Sold
-
-
-
440,000
32
14,080,000
25,000
26
650,000
18,000
26
468,000
Total
440,000
32
14,080,000
465,000
14,730,000
18,000
26
468,000
Thus, the calculated values are
$
Opening stock
1,118,000
Purchases
14,080,000
Sales (465,000 units x $44)
20,460,000
Closing stock
468,000
Cost of goods sold
14,730,000
Answer 1: Cost of Goods sold = $14,730,000
Answer 2: Gross Profit = Sales – Cost of Goods sold
= 20,460,000 – 14,730,000
= $ 5,730,000
Answer 3: Journal Entry for Sales
Debit ($)
Credit ($)
Accounts Receivable a/c Dr
20,460,000
To Sales
20,460,000
Answer 4: Journal Entry for cost of goods sold
Debit ($)
Credit ($)
Cost of goods sold a/c Dr
14,730,000
To Purchases a/c
14,080,000
To Inventory a/c
650,000
Explanation:
1. Cost of goods sold is Debited because it is cost/expense incurred on goods sold
2. Purchases a/c is credited because the portion of goods sold from the goods purchased is credited to purchases account to nil this account. As we debit cost of goods sold, we need not have a debit of purchases. Hence we cancel purchases to nil the account.
3. The portion of goods we sold from inventory on hand has to be credited to inventory account to reduce the qty of inventory on hand to the extent of units sold.
Qty
Price per unit
Opening inventory
43,000 units
$26
Purchases
440,000 units
$32
Sold
465,000 units
$44
Ending inventory
18,000 units
?
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