Comple -5A Effect of inventory cost flow on ending inventory balance and gross m

Question

Comple -5A Effect of inventory cost flow on ending inventory balance and gross margin had the following transactions for T-shirts for 2016, its first year of LO Shop operations: Purchased 400 units@$ 8 $3,200 2,000 Jan. 20 Apr. 21 July 25 Sept. 19 Purchased 200 units@ $10 Purchased 280 units@$133,640 Purchased 90units @ $15 = 1.350 During the year, The Shirt Shop sold 810 T-shirts for S30 each. Required 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 a. b Record the above transactions in general journal form and post to T-accounts assuming (1) FIFO, (2) LIFO, and (3) weighted average methods. Use a separate set of journal entrics and T-accounts for each method. Assume all transactions are cash transactions c. Co mpute the difference in gross margin between the FIFO and LIFO cost flow assumptions

Explanation / Answer

Answer:- First Year of Operation Detail of Shirt Purchased PURCHASED Date Quantity Cost Per Price Value 20th Jan 2016                                    400.00 $8 $3,200 21st Apr 2016                                    200.00 $10 $2,000 25th July 2016                                    280.00 $13 $3,640 19th Sept 2017                                      90.00 $15 $1,350                                    970.00 $10,190 Detail of Quantity Sold During the year 810 $30 $24,300 810 $30 $24,300 Amount of Ending Inventory A. FIFO First In First Out method Hence Considering FIFO method the quantity which comes first is sold first and the quantity which remains in stock is last stock. Hence Closing stock is Quantity Cost Per Uniit Value                      70.00 $13 $910                      90.00 $15 $1,350                    160.00 $2,260 B. LIFO Hence Considering LIFO method the Quantity which comes last is sold first and quantity which remains in stock is first stock. Hence Closing stock is Quantity Cost Per Uniit Value                    160.00 $8 $1,280                    160.00 $1,280 C. Weighted Average method Hence Considering WAM method the Quantity is sold based on average basis Average Price of Stock $10,190/970 $                10.51 Clsong Stock Quantity                  160.00 Cost Per Unit $                10.51 Value $          1,680.82 Record of Above Transaction Transaction for FIFO Method Transaction for LIFO Method Transaction for Weighted Average Method Date Particulars Debit Amount Credit Amount Date Particulars Debit Amount Credit Amount Date Particulars Debit Amount Credit Amount 20th Jan 2016 Purchases $3,200 20th Jan 2016 Purchases $3,200 20th Jan 2016 Purchases $3,200 To Cash $3,200 To Cash $3,200 To Cash $3,200 21st Apr 2016 Purchases $2,000 21st Apr 2016 Purchases $2,000 21st Apr 2016 Purchases $2,000 To Cash $2,000 To Cash $2,000 To Cash $2,000 25th July 2016 Purchases $3,640 25th July 2016 Purchases $3,640 25th July 2016 Purchases $3,640 To Cash $3,640 To Cash $3,640 To Cash $3,640 19th Sept 2017 Purchases $1,350 19th Sept 2017 Purchases $1,350 19th Sept 2017 Purchases $1,350 To Cash $1,350 To Cash $1,350 To Cash $1,350 After 19th Sept'16 Cash $24,300 After 19th Sept'16 Cash $24,300 After 19th Sept'16 Cash $24,300 Sales $24,300 Sales $24,300 Sales $24,300 Cash Account Cash Account Cash Account Particulars Dr Amount Particulars Cr Amount Particulars Dr Amount Particulars Cr Amount Particulars Dr Amount Particulars Cr Amount Sales Account $24,300 Purchases $3,200 Sales Account $24,300 Purchases $3,200 Sales Account $24,300 Purchases $3,200 Purchases $2,000 Purchases $2,000 Purchases $2,000 Purchases $3,640 Purchases $3,640 Purchases $3,640 Purchases $1,350 Purchases $1,350 Purchases $1,350 Closing Balance $14,110 Closing Balance $14,110 Closing Balance $14,110 $24,300 $24,300 $24,300 $24,300 $24,300 $24,300 Purchases Account Purchases Account Purchases Account Particulars Dr Amount Particulars Cr Amount Particulars Dr Amount Particulars Cr Amount Particulars Dr Amount Particulars Cr Amount Cash $3,200 Cash $3,200 Cash $3,200 Cash $2,000 Cash $2,000 Cash $2,000 Cash $3,640 Cash $3,640 Cash $3,640 Cash $1,350 Transfer to P&L Account $10,190 Cash $1,350 Transfer to P&L Account $10,190 Cash $1,350 Transfer to P&L Account $10,190 $10,190 $10,190 $10,190 $10,190 $10,190 $10,190 Sales Account Sales Account Sales Account Particulars Dr Amount Particulars Cr Amount Particulars Dr Amount Particulars Cr Amount Particulars Dr Amount Particulars Cr Amount Transfer to P&L Account $24,300 Cash Account $24,300 Transfer to P&L Account $24,300 Cash Account $24,300 Transfer to P&L Account $24,300 Cash Account $24,300 $24,300 $24,300 $24,300 $24,300 $24,300 $24,300 Profit and Loss Account Profit and Loss Account Profit and Loss Account Particulars Dr Amount Particulars Cr Amount Particulars Dr Amount Particulars Cr Amount Particulars Dr Amount Particulars Cr Amount Purchases $10,190 Sales Account $24,300 Purchases $10,190 Sales Account $24,300 Purchases $10,190 Sales Account $24,300 Net profit $16,370 Closing Stock $2,260 Net profit $15,390 Closing Stock $1,280 Net profit $15,791 Closing Stock $          1,681.00 $26,560 $26,560 $25,580 $25,580 $25,981 $25,981 Gross Margin Gross Margin as per FIFO Method $16,370 Gross Margin as per LIFO method $15,390 Difference in Gross Margin $980

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