Johnson Corporation began 2018 with inventory of 18,000 units of its only produc
ID: 2574905 • Letter: J
Question
Johnson Corporation began 2018 with inventory of 18,000 units of its only product. The units cost $8 each. The company uses a periodic inventory system and the LIFO cost method. The following transactions occurred during 2018: Purchased 90,000 additional units at a cost of $12 per unit. Terms of the purchases were 2/10, n/30, and 100% of the purchases were paid for within the 10-day discount period. The company uses the gross method to record purchase discounts. The merchandise was purchased f.o.b. shipping point and freight charges of $0.60 per unit were paid by Johnson. 1,800 units purchased during the year were returned to suppliers for credit. Johnson was also given credit for the freight charges of $0.60 per unit it had paid on the original purchase. The units were defective and were returned two days after they were received. Sales for the year totaled 85,000 units at $19 per unit. On December 28, 2018, Johnson purchased 5,800 additional units at $10 each. The goods were shipped f.o.b. destination and arrived at Johnson's warehouse on January 4, 2019. 21,200 units were on hand at the end of 2018. Required: 1. Complete the below table to determine the ending inventory and cost of goods sold for 2018. 2. Assuming that operating expenses other than those indicated in the above transactions amounted to $166,000, determine income before income taxes for 2018.
Explanation / Answer
Johnson Corporation Determine ending inventory and cost of goods sold for 2018. Ending Inventory 144,000 Beginning Inventory (18,000 x $8) + 38,400 Purchases ( 3,200 x $12) + 1,920 Freight-In (3,200 x $0.60) - 768 Purchase Discounts (38,400 x 2%) = $183,552 Ending Inventory Cost of Goods Sold 1,020,000 Gross Cost of Purchases (85000 x 12) + 51,000 Freight-In (85,000 x $0.60) - 20,400 Purchase Discounts (1,020,000 x 2%) = $1,050,600 Cost of Goods Sold Assuming that operating expenses other than those indicated in the above transactions amounted to $166,000, determine income before income taxes for 2018. 1,615,000 Sales (85,000 x $19) - 1,050,600 Cost of Goods Sold - 166,000 Operating Expenses = $398,400 Income Before Taxes On December 28, 2018, Johnson purchased 5,800 additional units at $10 each. The goods were shipped f.o.b. destination and arrived at Johnson's warehouse on January 4, 2019 Since these goods were shipped f.o.b. destination and they won't arrive until after the end of the year, they are excluded from ending inventory and cost of goods sold.
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