P ROBLEM #2: INVENTORY Mmm Good, Inc. sells fairly traded, organic coffee by the
ID: 2588288 • Letter: P
Question
PROBLEM #2: INVENTORY
Mmm Good, Inc. sells fairly traded, organic coffee by the pound (“lb”). Presented below is the information for December. The company uses a perpetual inventory system and the FIFO cost flow assumption. All purchases and sales are made on account. A physical inventory count indicates that the ending inventory on Dec 31 is 40 lbs.
Dec 1 Beginning Inventory 50 lbs @ $5.00/lb
Dec 10 Sale 40 lbs @ $8.00/lb
Dec 15 Purchase 60 lbs @ $6.00/lb
Dec 24 Sale 30 lbs @ $8.00/lb
Required: Prepare all necessary journal entries.
Date
Journal Entries
Dec 10
Dec 15
Dec 24
Required: Calculate gross profit.
Required: Would gross profit be higher or lower if the LIFO method was used? Explain why.
Date
Journal Entries
Dec 10
Dec 15
Dec 24
Explanation / Answer
Journal:
workings:
LIFO workings:
Using LIFO profit is 180, with FIFO it is 190. Gross profit is lower if FIFO is used.
Date Account Debit Credit Dec 10 Accounts receivable 320 Sales 320 [sales recorded] Cost of goods sold 200 Inventory 200 [Cost of goods sold recorded] Dec.15 Inventory 360 Accounts payable 360 [Purchases recorded] Dec 24 Accounts receivable 240 Sales 240 [sales recorded] Cost of goods sold 170 Inventory 170 [Cost of goods sold recorded]Related Questions
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