Lupulin Limited stocks a variety of sports equipment for sale to institutions. The following stock record card for basketballs was taken from the records at the December 31, 2020 year end:

A physical inventory on December 31, 2020, reveals that 100 basketballs are in stock. The bookkeeper informs you that all the discounts were taken. Assume that Lupulin Limited uses a periodic inventory system and records purchases at their invoice price less discounts. During 2020, the average sales price per basketball was $22.25.

Instructions

a. Calculate the December 31, 2020 inventory using the FIFO formula.

b. Calculate the December 31, 2020 inventory using the weighted average cost formula. (Round unit costs to the nearest cent.)

c. Prepare income statements for the year ended December 31, 2020, as far as the ?gross profit? line under each of the FIFO and weighted average methods, and calculate the gross profit rate for each. Explain the difference in the gross profit under the two methods.

d. Digging Deeper If the selling prices for the basketballs that were sold follow the same pattern as their wholesale prices from the supplier, might this have an effect on the inventory cost that is reported on the December 31, 2020 SFP? (Hint: Review your answers to parts [a] to [c].)

Transcribed Image Text:

Unit Invoice Gross Invoice Units Invoice Number balance 10624 11437 21332 Terms Net 30 Net 30 1/5, net 30 1/10, net 30 1/10, net 30 1/10, net 30 Cost Amount Date Received 100 60 65 Jan. 1 $2,000 1,200 1,040 1,350 1,008 836 20.00 16.00 15.00 12.00 15 Mar. 15 June 20 06 Sept. 12 Nov. 24 27644 31269 84 76 11.00 475 Totals $7,434