Question 2 (20 marks)

Mega Company Limited uses the perpetual inventory system. The following information is available for the month of November 2019.

Date Units Cost per unit Selling price per unit

2019 $$

November 1 Beginning inventory 200 10 Purchase 300 23 Purchase 400 25 Sales 800

All the purchases and sales are made on account.

Required:

80 120 140

(a) Compute the cost of goods sold and ending inventory for the month of November 2019 using each of the following inventory costing methods.

(i) First-In-First-Out (FIFO);

(ii) Last-In-First-Out (LIFO); and

(iii) Weighted Average Costing method. (9 marks)

(Note: Show all your workings and calculation steps to earn full credit. Round the answers to the nearest dollar.)

(b) Prepare journal entries to record the sales and cost of goods sold on 25 November 2019 assuming weighted average costing method is adopted. (Note: Narrations are not required.) (4 marks)

(c) Assume the supplier offered Mega Company Limited a payment term of 3/10, n/30 with free shipping and handling. Prepare journal entries to record

(i) the purchase of inventory on 23 November 2019; and

(ii) the payment to the supplier on 1 December 2019. (5 marks)

(Note: Narrations are not required.)

(d) Discuss which inventory costing method produces the highest gross profit when inventory

300

costs are increasing.

(2 marks)

Date 400 300 Question 2 (20 marks) Mega Company Limited uses the perpetual inventory system. The following information is available for the month of November 2019. Units Cost per unit Selling price per unit 2019 November Beginning inventory 200 80 10 Purchase 300 120 23 Purchase 140 25 Sales 800 All the purchases and sales are made on account. Required: (a) Compute the cost of goods sold and ending inventory for the month of November 2019 using each of the following inventory costing methods. 0 First-In-First-Out (FIFO): () Last-In-First-Out (LIFO); and (in) Weighted Average Costing method. (9 marks) (Note: Show all your workings and calculation steps to earn full credit. Round the answers to the nearest dollar) (b) Prepare journal entries to record the sales and cost of goods sold on 25 November 2019 assuming weighted average costing method is adopted. (Note: Narrations are not required) (4 marks) (c) Assume the supplier offered Mega Company Limited a payment term of 3/10, n/30 with free shipping and handling. Prepare journal entries to record () the purchase of inventory on 23 November 2019; and (i) the payment to the supplier on 1 December 2019. (5 marks) (Note: Narrations are not required) Discuss which inventory costing method produces the highest gross profit when inventory costs are increasing (2 marks) [Total marks for Question 2: 20 marks