Question

Assume that three identical units of merchandise were purchased during October, as follows: Units Cost October 5 Purchase 1 $5 12 Purchase 1 13 28 Purchase 1 15 Total 3 $33 Assume one unit is sold on October 31 for $28. Determine cost of merchandise sold, gross profit, and ending inventory under the LIFO method.

Answer 1

Answer:

COST OF MERCHANDISE SOLD = $15

GROSS PROFIT = $13

CLOSING INVENTORY = $18 (2 UNITS)

Explanation:

UNDER THE LAST IN FIRST OUT METHOD OF INVENTORY VALUATION, IT IS ASSUMED THAT THE LAST INVENTORY PURCHASED WILL BE THE FIRST TO BE SOLD.

THEREFORE, TO CALCULATE THE ABOVE ANSWERS, THE FOLLOWING WAS COMPUTED:

SALES (1 UNIT*$28)                                                                 28

OPENING INVENTORY($)                                              0

PURCHASES($)                                                              33      

COST OF GOODS AVAILABLE FOR SALE($)              33

CLOSING INVENTORY ((1 UNIT*$13)+(1 UNIT*$5))  (18)        

COST OF MERCHANDISE SOLD($)                                     (15)        

GROSS PROFIT($)                                                                   13

Answer 2

Answer:

Cost of merchandise sold = $ 28

Gross profit = $ 13

The ending inventory under the LIFO method = $ 18

Explanation:

Given:

October 5,

Purchased units =  1

Unit cost = $5

on October  12,

Purchased units = 1

Unit cost = $ 13

On October 28,

Purchased unit = 1

Unit cost = $ 15

Total cost of the 3 units purchased = $33

Now, the unit sold on October 31 will be the unit purchased in the end i.e on October 28

thus,

Cost of merchandise sold = $ 28

Gross profit = Selling price of the unit - Unit price of purchase

or

Gross profit = $ 28 - $ 15 = $ 13

now, the ending inventory under the LIFO method = $ 5 + $ 13 = $ 18