Bristol Sales had the following transactions for DVD’s in 2012, its first year o

Question

Bristol Sales had the following transactions for DVD’s in 2012, its first year of operations.

Jan. 20 Purchased 75 units @ $17 = $1,275
Apr. 21 Purchased 450 units @ $19 = $8,550
July 25 Purchased 200 units @ $23 = $4,600
Sept. 19 Purchased 100 units @ $29 = $2,900

During the year, Bristol Sales sold 775 DVDs for $60 each.

a. Compute the amount of ending inventory Bristol would report on the balance sheet, assuming the following cost flow assumptions: (1) FIFO, (2) LIFO, and (3) weighted average.

b. Record the above transactions in general journal form and post to T-accounts using (1) FIFO, (2) LIFO, and (3) weighted average. Use a separate set of journal entries and T-accounts for each method. Assume all transactions are cash transactions.

c. Compute the difference in gross margin between the FIFO and LIFO cost flow assumptions.

Explanation / Answer

a) Amount of Ending inventory : UNder FIFO ,LIFO ,WEIGHTED AVG: Total units purchased : Jan. 20 Purchased 75 units @ $17 = $1,275
Apr. 21 Purchased 450 units @ $19 = $8,550
July 25 Purchased 200 units @ $23 = $4,600
Sept. 19 Purchased 100 units @ $29 = $2,900

sold = 775 @60 Closing inventory = Opening stock + purchase - sale = [75+450+200+100] - 775 =825-775 = 50 units NOTE:Under any method the number units will not chnged.But the value cost would be change The values of the closing stocks: Under FIFO: = [$17325 -(75*$17+450*$19+200*423+50*$29)] =$1450 Under LIFO: = [ $17325- (100*$29+200*$23+450*$19+25*$17)] = $850 Under Weighted avg: = [ 825*$22- (775*(17+19+23+29)/4)] = [$18150-$17050] =$1100 c) Gorss margine : Under FIFO: Gross margine = Sales -csot of good slod here sales = 775*60 =$46500 csot of good sol = [ Opening stock + purchase - closing stock] Gross margine = 46500-[17325-1450] = $46500-15875 =$ 30625 Under FiFO: Gross Margine = [ 46500(17325-850)] =$46500-$16475 =$30025 Under Weighted avg: gross margine = [ 46500 -[ (825*$22)-1100) =[46500-17050] =$29450 Jornal entries: Under FIFO: Purchase $17325 cash $17325 cash 46500 sales 46500 cost of good sold 15875 inventroy 15875 Under LIFO: Purchase $17325 cash $17325 cash 46500 sales 46500 cost of good sold 16475 inventroy 16475 UNDEr Weigted avg Purchase $18150(822*22) cash $18150 cash 46500 sales 46500 cost of good sold 17050 inventroy 17050 Thanq Purchase $17325 cash $17325 cash 46500 sales 46500 cost of good sold 16475 inventroy 16475 UNDEr Weigted avg Purchase $18150(822*22) cash $18150 cash 46500 sales 46500 cost of good sold 17050 inventroy 17050 Thanq Purchase $18150(822*22) cash $18150 cash 46500 sales 46500 cost of good sold 17050 inventroy 17050 Thanq

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