The beginning inventory at Funky Party Supplies and data on purchases and sales for a three month period ending March 31, 2016, are as follows Date Transaction Number of Units Per Unit Total Jan 1 Inventory 2,600 $58 00 $150,800 10 Purchase 7,200 66 00 475,200 28 Sale 3,950 116 00 458,200 30 Sale 1,300 116 00 150,800 Feb 5 Sale 500 116 00 58,000 10 Purchase 17,500 68 00 1,190,000 16 Sale 9,200 121 00 1,113,200 28 Sale 8,000 121 00 968,000 Mar 5 Purchase 14,400 69 60 1,002,240 14 Sale 10,100 121 00 1,222,100 25 Purchase 3,300 70 00 231,000 30 Sale 7,900 121 00 955,900 Instructions 1 Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 4, using the first in, first out method 2 Determine the total sales and the total cost of merchandise sold for the period Journalize the entries in the sales and cost of merchandise sold accounts Assume that all sales were on account and date your journal entry March 31 Refer to the Chart of Accounts for exact wording of account titles 3 Determine the gross profit from sales for the period 4 Determine the ending inventory cost as of March 31, 2016 5 Based upon the preceding data, would you expect the inventory using the last in, first out method The method of inventory costing based on the assumption that the cost of merchandise sold is the cost of the most recent purchases to be higher or lower none X FIFO Shaded cells have feedback 1 Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 4, using the first in, first out method Date Purchases Cost of Merchandise Sold Inventory 2016 Quantity Unit Cost Total Cost Quantity Unit Cost Total Cost Quantity Unit Cost Total Cost Jan 1 10 10 28 28 30 Feb 5 10 10 16 16 28 Mar 5 5 14 14 25 25 30 30 31 Balances Points 81 95 Feedback Check My Work FIFO means that the first units purchased are assumed to be the first to be sold Therefore, ending inventory is made up of the most recent purchases Think of your inventory in terms of layers The first sale comes from the oldest layer, which is beginning inventory When deciding which layer to use for costing of the next sale ask yourself Is the remaining amount of the beginning inventory layer enough to satisfy the second sale If not, the other units sold should be taken from the next purchase layer, which then contains the oldest costs Continue this process for each transaction If you have completed the problem correctly, the remaining units making up ending inventory should be costed at the March 5 and March 25 unit purchase prices none X Chart of Accounts CHART OF ACCOUNTS Funky Party Supplies General Ledger ASSETS 110 Cash 111 Petty Cash 120 Accounts Receivable 131 Notes Receivable 132 Interest Receivable 141 Merchandise Inventory 145 Office Supplies 146 Store Supplies 151 Prepaid Insurance 181 Land 191 Office Equipment 192 Accumulated Depreciation Office Equipment 193 Store Equipment 194 Accumulated Depreciation Store Equipment LIABILITIES 210 Accounts Payable 221 Notes Payable 222 Interest Payable 231 Salaries Payable 241 Sales Tax Payable EQUITY 310 Common Stock 311 Retained Earnings 312 Dividends 313 Income Summary REVENUE 410 Sales 610 Interest Revenue EXPENSES 510 Cost of Merchandise Sold 515 Credit Card Expense 516 Cash Short and Over 520 Salaries Expense 531 Advertising Expense 532 Delivery Expense 533 Insurance Expense 534 Office Supplies Expense 535 Rent Expense 536 Repairs Expense 537 Selling Expenses 538 Store Supplies Expense 561 Depreciation Expense Office Equipment 562 Depreciation Expense Store Equipment 590 Miscellaneous Expense 710 Interest Expense none X Journal Shaded cells have feedback 2 Determine the total sales and the total cost of merchandise sold for the period Journalize the entries in the sales and cost of merchandise sold accounts Assume that all sales were on account and date your journal entry March 31 Refer to the Chart of Accounts for exact wording of account titles How does grading work The grader is designed to give you the best score possible, even when you skip lines or enter them out of order It does this by taking every line you have entered and comparing it to every line in the answer When it finds the line that gives you the best score, it considers that a match PAGE 10 JOURNAL Score 28 51 DATE DESCRIPTION POST REF DEBIT CREDIT 1 2 3 4 Solution DATE DESCRIPTION POST REF DEBIT CREDIT 1 2 3 4 Points 5 49 10 Feedback Check My Work Total sales are obtained by taking the number of units sold times their sale prices for all sales and adding these amounts together The total cost of merchandise sold can be obtained by adding the FIFO costs in the perpetual inventory record When the perpetual inventory system is used, revenue is recorded each time a sale is made along with an entry to record the cost of the merchandise sold For this problem, however, prepare one journal entry for the sale on account and one for the cost of merchandise sold none X Final Questions Shaded cells have feedback 3 Determine the gross profit from sales for the period Points 0 1 Feedback Check My Work Sales minus cost of merchandise sold equals gross profit Explanation 4 Determine the ending inventory cost as of March 31, 2016 Points 0 1 Feedback Check My Work The ending inventory is what is left after subtracting the cost of goods sold from the goods available for sale Multiply the units remaining after the last sale by their corresponding most recent layer cost to determine the FIFO cost of the ending inventory Explanation 5 Based upon the preceding data, would you expect the inventory using the last in, first out method The method of inventory costing based on the assumption that the cost of merchandise sold is the cost of the most recent purchases to be higher or lower Lower Higher Points 1 1 Feedback Check My Work Consider how prices were moving Remember FIFO reports higher gross profit, net income, and ending inventory than the LIFO method when costs (prices) are increasing

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The beginning inventory at Funky Party Supplies and data on purchases and sales for a three-month period ending March 31, 2016, are as follows: Date

The beginning inventory at Funky Party Supplies and data on purchases and sales for a three-month period ending March 31, 2016, are as follows:

Date		Transaction	Number of Units	Per Unit	Total
Jan.	1	Inventory	2,600	$58.00	$150,800
	10	Purchase	7,200	66.00	475,200
	28	Sale	3,950	116.00	458,200
	30	Sale	1,300	116.00	150,800
Feb.	5	Sale	500	116.00	58,000
	10	Purchase	17,500	68.00	1,190,000
	16	Sale	9,200	121.00	1,113,200
	28	Sale	8,000	121.00	968,000
Mar.	5	Purchase	14,400	69.60	1,002,240
	14	Sale	10,100	121.00	1,222,100
	25	Purchase	3,300	70.00	231,000
	30	Sale	7,900	121.00	955,900

	Instructions
1.	Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 4, using the first-in, first-out method.
2.	Determine the total sales and the total cost of merchandise sold for the period. Journalize the entries in the sales and cost of merchandise sold accounts. Assume that all sales were on account and date your journal entry March 31. Refer to the Chart of Accounts for exact wording of account titles.
3.	Determine the gross profit from sales for the period.
4.	Determine the ending inventory cost as of March 31, 2016.
5.	Based upon the preceding data, would you expect the inventory using the last-in, first-out method The method of inventory costing based on the assumption that the cost of merchandise sold is the cost of the most recent purchases. to be higher or lower?

none

FIFO

Shaded cells have feedback.

1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 4, using the first-in, first-out method.

Date	Purchases			Cost of Merchandise Sold			Inventory
2016	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost
Jan. 1
10
10
28
28
30
Feb. 5
10
10
16
16
28
Mar. 5
5
14
14
25
25
30
30
31	Balances

Points:

81 / 95

Feedback

Check My Work

FIFO means that the first units purchased are assumed to be the first to be sold. Therefore, ending inventory is made up of the most recent purchases. Think of your inventory in terms of "layers." The first sale comes from the oldest layer, which is beginning inventory. When deciding which layer to use for costing of the next sale ask yourself: "Is the remaining amount of the beginning inventory layer enough to satisfy the second sale?" If not, the other units sold should be taken from the next purchase layer, which then contains the oldest costs. Continue this process for each transaction. If you have completed the problem correctly, the remaining units making up ending inventory should be costed at the March 5 and March 25 unit purchase prices.

none

Chart of Accounts

CHART OF ACCOUNTS

Funky Party Supplies

General Ledger

	ASSETS
110	Cash
111	Petty Cash
120	Accounts Receivable
131	Notes Receivable
132	Interest Receivable
141	Merchandise Inventory
145	Office Supplies
146	Store Supplies
151	Prepaid Insurance
181	Land
191	Office Equipment
192	Accumulated Depreciation-Office Equipment
193	Store Equipment
194	Accumulated Depreciation-Store Equipment

	LIABILITIES
210	Accounts Payable
221	Notes Payable
222	Interest Payable
231	Salaries Payable
241	Sales Tax Payable

	EQUITY
310	Common Stock
311	Retained Earnings
312	Dividends
313	Income Summary

	REVENUE
410	Sales
610	Interest Revenue

	EXPENSES
510	Cost of Merchandise Sold
515	Credit Card Expense
516	Cash Short and Over
520	Salaries Expense
531	Advertising Expense
532	Delivery Expense
533	Insurance Expense
534	Office Supplies Expense
535	Rent Expense
536	Repairs Expense
537	Selling Expenses
538	Store Supplies Expense
561	Depreciation Expense-Office Equipment
562	Depreciation Expense-Store Equipment
590	Miscellaneous Expense
710	Interest Expense

none

Journal

Shaded cells have feedback.

2. Determine the total sales and the total cost of merchandise sold for the period. Journalize the entries in the sales and cost of merchandise sold accounts. Assume that all sales were on account and date your journal entry March 31. Refer to the Chart of Accounts for exact wording of account titles.

How does grading work?

The grader is designed to give you the best score possible, even when you skip lines or enter them out of order. It does this by taking every line you have entered and comparing it to every line in the answer. When it finds the line that gives you the best score, it considers that a match.

PAGE 10

JOURNAL

Score: 28/51

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1
2
3
4

Solution

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1
2
3
4

Points:

5.49 / 10

Feedback

Check My Work

Total sales are obtained by taking the number of units sold times their sale prices for all sales and adding these amounts together. The total cost of merchandise sold can be obtained by adding the FIFO costs in the perpetual inventory record. When the perpetual inventory system is used, revenue is recorded each time a sale is made along with an entry to record the cost of the merchandise sold. For this problem, however, prepare one journal entry for the sale on account and one for the cost of merchandise sold.

none

Final Questions

Shaded cells have feedback.

3. Determine the gross profit from sales for the period.

Points:

0 / 1

Feedback

Check My Work

Sales minus cost of merchandise sold equals gross profit.

Explanation

4. Determine the ending inventory cost as of March 31, 2016.

Points:

0 / 1

Feedback

Check My Work

The ending inventory is what is left after subtracting the cost of goods sold from the goods available for sale. Multiply the units remaining after the last sale by their corresponding most recent layer cost to determine the FIFO cost of the ending inventory.

Explanation

5. Based upon the preceding data, would you expect the inventory using the last-in, first-out method

The method of inventory costing based on the assumption that the cost of merchandise sold is the cost of the most recent purchases.

to be higher or lower?

Lower

Higher

Points:

1 / 1

Feedback

Check My Work

Consider how prices were moving. Remember FIFO reports higher gross profit, net income, and ending inventory than the LIFO method when costs (prices) are increasing.