The Shirt Shop had the following transactions for T-shirts for 2016, its first y

Question

The Shirt Shop had the following transactions for T-shirts for 2016, its first year of operations: Jan. 20 Purchased 590 units @ $8 = $ 4,720 Apr. 21 Purchased 390 units @ $10 = 3,900 July 25 Purchased 470 units @ $13 = 6,110 Sept. 19 Purchased 280 units @ $15 = 4,200 During the year, The Shirt Shop sold 1,380 T-shirts for $24 each. 7. Required information Required a.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. (Round cost per unit to 2 decimal places and final answers to the nearest whole dollar amount.) 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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. c. Compute the difference in gross margin between the FIFO and LIFO cost flow assumptions.

Explanation / Answer

Part a)

The value of ending inventory under each method is calculated as below:

The quantity of ending inventory will be 350 units (590 + 390 + 470 + 280 - 1,380).

Now, we can determine the value of ending inventory as follows:

Ending Inventory (FIFO) = 280*15 (from September 19 Purchase) + (350 - 280)*13 (from July 25 Purchase) = $5,110

Ending Inventory (LIFO) = 350*8 (from January 20 Purchase) = $2,800

Ending Inventory (Weighted Average) = (Total Cost)/Total Units*Units in Ending Inventory = (4,720 + 3,900 + 6,110 + 4,200)/(590 + 390 + 470 + 280)*350 = $3,830

_____

Part b)

The journal entries under each method are provided as below:

FIFO:

_____

LIFO:

_____

Weighted Average:

_____

The T-Accounts under each method are given as below:

FIFO:

____

____

____

____

LIFO:

____

____

____

____

Weighted Average:

____

____

____

____

Part c)

The difference in gross margin between the FIFO and LIFO cost flow assumptions is determined as below:

Gross Margin (FIFO) = 33,120 (Sales) - 13,820 (Cost of Goods Sold) = $19,300

Gross Margin (LIFO) = 33,120 (Sales) - 16,130 (Cost of Goods Sold) = $16,990

Difference in Gross Margin = Gross Margin (FIFO) - Gross Margin (LIFO) = 19,300 - 16,990 = $2,310

Date Account Titles Debit Credit Jan.20 Merchandise Inventory $4,720 Cash $4,720 Apr. 21 Merchandise Inventory $3,900 Cash $3,900 Jul. 25 Merchandise Inventory $6,110 Cash $6,110 Sept. 19 Merchandise Inventory $4,200 Cash $4,200 2016 Cash (1,380*24) $33,120 Sales Revenue $33,120 Cost of Goods Sold (4,720 + 3,900 + 6,110 + 4,200 - 5,110) $13,820 Merchandise Inventory $13,820

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.