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

Date		Transaction	Number of Units	Per Unit	Total
Jan.	1	Inventory	2,500	$64.00	$160,000
	10	Purchase	7,600	72.00	547,200
	28	Sale	3,700	128.00	473,600
	30	Sale	1,400	128.00	179,200
Feb.	5	Sale	500	128.00	64,000
	10	Purchase	18,500	74.00	1,369,000
	16	Sale	8,900	133.00	1,183,700
	28	Sale	8,500	133.00	1,130,500
Mar.	5	Purchase	15,000	75.60	1,134,000
	14	Sale	10,000	133.00	1,330,000
	25	Purchase	3,300	76.00	250,800
	30	Sale	7,650	133.00	1,017,450

Instructions

1.

Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in

Exhibit 3

, 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.

5.

Based upon the preceding data, would you expect the inventory using the last-in, first-out method to be higher or lower?

1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in

Exhibit 3

, using the first-in, first-out method.

Date

Purchases

Cost of Merchandise Sold

Inventory

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

CHART OF ACCOUNTSMidnight SuppliesGeneral 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	Owner, Capital
311	Owner, Drawing
312	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

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.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3
4

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

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Sales minus cost of merchandise sold equals gross profit.

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

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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.

5. Based upon the preceding data, would you expect the inventory using the last-in, first-out method to be higher or lower?

Lower

Higher