Johnson Corporation began 2013 with inventory of 30,000 units of its only produc
ID: 2471600 • Letter: J
Question
Johnson Corporation began 2013 with inventory of 30,000 units of its only product. The units cost $8 each. The company uses a periodic inventory system and the LIFO cost method. The following transactions occurred during 2013: a. Purchased 150,000 additional units at a cost of $10 per unit. Terms of the purchases were 1/10, n/30, and 100% of the net purchases were paid for within the 10-day discount period. The company uses the gross method to record purchase discounts. The merchandise was purchased f.o.b. shipping point and freight charges of $.40 per unit were paid by Johnson. b. 3,000 units purchased during the year were returned to suppliers for credit. Johnson was also given credit for the freight charges of $.40 per unit it had paid on the original purchase. The units were defective and were returned two days after they were received. c. Sales for the year totaled 145,000 units at $16 per unit. d. On December 28, 2013, Johnson purchased 7,000 additional units at $10 each. The goods were shipped f.o.b. destination and arrived at Johnson's warehouse on January 4, 2014. e. 32,000 units were on hand at the end of 2013. Required: 1. Determine ending inventory and cost of goods sold for 2013. (Calculate the discount based on the net purchases during the period.) 2. Assuming that operating expenses other than those indicated in the above transactions amounted to $190,000, determine income before income taxes for 2013.
Explanation / Answer
Determine ending inventory and cost of goods sold for 2013. Beginning Inventory (30,000 units x $8) $240,000 Net Purchases (150,000 units x $10) $1,500,000 Less: Returns (3000 units x $10 + $.40 (freight) -$31,200 Less: Purchase Discounts (150,000 - 3000) x $10 x 2% -$29,400 Add: Freight in (150,000 units x $.40) $60,000 $1,499,400 Cost of goods Available (177,000 units) $1,739,400 Less: Ending Inventory (calculated below) -$260,600 Cost of goods sold $1,478,800 On December 28, 2013, Johnson purchased 7,000 additional units at $10 each. The goods were shipped f.o.b. destination and arrived at Johnson's warehouse on January 4, 2014 not be included. Cost of ending Inventory Date of Purchases Units Cost per unit Total Beginning Inventory 30000 $8 $240,000 Ending Inventory 2000 $10.3 $20,600 Total 32000 $260,600 Cost per unit = $10 x (100% -2%)+ $.50 freight 2. Assuming that operating expenses other than those indicated in the above transactions amounted to $190,000, determine income before income taxes for 2013. Sales (145,000 units x $16 $2,320,000 Less: Cost of good sold -$1,478,800 Less: operating Expenses -$190,000 Income before income taxes $651,200
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