Exercise 8-9 Bramble Company sells one product. Presented below is information f

Question

Exercise 8-9 Bramble Company sells one product. Presented below is information for January for Bramble Company 114 units at $5 each 89 units at $8 each 156 units at $7 each 126 units at $9 each 158 units at $7 each 103 units at $11 each Jan. 1 Inventory 4 Sale 11 13 Sale 20 27 Sale Purchase Purchase Bramble uses the FIFO cost flow assumption. All purchases and sales are on account. Your answer is partially correct. Try again. Assume Bramble uses a periodic system. Prepare all necessary journal entries, including the end-of-month closing entry to record cost of goods sold. A physical count indicates that the ending inventory for January is 110 units. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Date Account Titles and Explanation Debit Credit an. 4 Accounts Receivable Sales Revenue Jan. 11 Purchases

Explanation / Answer

In a periodic inventory system when a sale is made, the entry to record the cost of goods sold is not made. At the end of accounting period, the quantity of inventory on hand (ending inventory) is found by a physical count and if the FIFO method is used to compute the cost of ending inventory

Journal entries under Periodic system (FIFO costing method)

Note:

Cost of Closing or Ending inventory:

Since the compnay is using FIFO method, the units remaining in the inventory represent the most recent costs incurred to purchase the inventory.

Closing inventory = 110 units.

Cost of the closing inventory = 110 units x $7 = $770 [Recent purchase is on Jan 20 @`$7 per unit)

Calculation of Cost of Goods Sold (COGS)

COGS = Cost of Opening inventory + Cost of Purchases - Cost of Closing inventory

= (114 units x $5) + [(156 units x $7) +(158 units x $7)] - $770

= $570 + $2,198 - $770

= $1,998

Journal entries under Periodic system:

Note 1:

The company has sold 89 units for $712 (89 units × $8) on January 4, 2016. On this date, 114 units in the beginning inventory are the only units available for sale. The cost of goods sold is, therefore, $445 (89 × $5)

Note 2:

Inventory remaining in opening inventory after Jan 4 sale = [114 units - 89 units] =25 units @5 each

Inventory from Jan 11 purchase = 156 units @7 each

Cost of goods sold on Jan 13 = (25 units x $5) + (101 units x $7) = $832   

Inventory remaining in Jan 11 purchase = (156 units -101 units) = 55 units @$7

Note 3:

Inventory remaining in Jan 11 purchase = (156 units -101 units) = 55 units @$7

Inventory from Jan 20 purchase = 158 units @7 each

Cost of goods sold on Jan 27 = (55 units x $7) + (48 units x $7) = $721

(Inventory remaing after sale = 158 units - 78 units = 80 units)

Date Accounts Titles and Explainations Debit Credit Jan 4 Accounts Receivable a/c $712 Sales revenue a/c [89 units x $8] $712 Jan 11 Purchases a/c [156 units x $7] $1,092 Accounts payables a/c $1,092 Jan 13 Accounts receivable a/c $1,134 Sales revenue a/c [126 units x $9] $1,134 Jan 20 Purchases a/c [158 units x 7] $1,106 Accounts payable a/c $1,106 Jan 27 Accounts receivable a/c $1,133 Sales revenue a/c [103 units x 11] $1,133 Jan 31 Inventory a/c [Closing inventoy] [plese see the note below] $770 Cost of Goods sold a/c $1,998 Purchases a/c [(156 + 158) x $7] $2,198 Inventory a/c [Opening inventory] [114 units x $5] $570

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