Use a perpetual inventory system and a LIFO costing method for ABC Company, a re
ID: 2387834 • Letter: U
Question
Use a perpetual inventory system and a LIFO costing method for ABC Company, a retailerOn July 2, 2007, ABC purchased 100 Reliable tires at $25 each. The purchase was made on account, and the tires were purchased as merchandise inventory.
On July 3, 2007, ABC decided to have an “After the 4th Sale”. Therefore, ABC purchased on account another 300 Reliable tires at $27 each.
On July 5, 2007, ABC sold 160 tires for cash. The sales price for each tire was $50. USE THE LIFO METHOD.
On July 6, 2007, ABC sold 200 tires for cash. The sales price for each tire was $50.
Calculate the following balances after the July 6th sale:
Sales Revenue:
Cost of Merchandise Sold:
Gross Profit:
Number of Reliable Tires in inventory:
Inventory Balance (dollars) for Reliable Tires:
Explanation / Answer
Sales
160 X $50 + 200 X $50 = $8,000 + $10,000 = $18,000
Sold 200 + 160 = 360 units
Had purchased 100 + 300 = 400 units.
So we have 400 units - 360 units = 40 units in inventory.
LIFO means last in first out, so the last items purchased are the first ones sold. So ending inventory will be of the first items purchased.
40 units X $25 = $1,000 ending inventory
Cost of Merchandise Sold is
60 units X $25 + 300 units X $27 = $1,500 + $8,100 = $9,600
Gross Profit = Sales - Cost of Merchadise Sold = $18,000 - $9,600 = $8,400
So to summarize,
Sales Revenue: $18,000
Cost of Merchandise Sold: $9,600
Gross Profit: $8,400
Number of Reliable Tires in inventory: 40
Inventory Balance (dollars) for Reliable Tires: $1,000
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