Answer:
1. Journal Entries
January 1
Dr. Inventory $624,000
Cr. Account Payables $624,000
January 10
Dr. Account Receivables $532,000
Cr. Sales $532,000
January 28
Dr. Account Receivables $175,000
Cr. Sales $175,000
Dr. Cost of Goods Sold $276,400
Cr. Inventory $276,400
January 30
Dr. Cost of Goods Sold $97,500
Cr. Inventory $97,500
February 5
Dr. Account Receivables $70,000
Cr. Sales $70,000
Dr. Cost of Goods Sold $39,000
Cr. Inventory $39,000
February 10
Dr. Inventory $1,360,000
Cr. Account Payable $1,360,000
February 16
Dr. Account Receivables $1,319,500
Cr. Sales $1,319,500
Dr. Cost of Goods Sold $718,100
Cr. Inventory $718,100
February 28
Dr. Account Receivables $1,261,500
Cr. Sales $1,261,500
Dr. Cost of Goods Sold $696,000
Cr. Inventory $696,000
March 5
Dr. Inventory $1,166,880
Cr. Account Payables $1,166,880
March 14
Dr. Account Receivables $1,421,000
Cr. Sales $1,421,000
Dr. Cost of Goods Sold $793,040
Cr. Inventory $793,040
March 25
Dr. Inventory $246,000
Cr. Account Payable $246,000
March 30
Dr. Account Receivables $1,145,500
Cr. Sales $1,145,500
Dr. Cost of Goods Sold $644,640
Cr. Inventory $644,640
* Assuming Purchases and Sales are made on Account
2.
Sales Value = $5,924,500
Opening Inventory = $175,000
Closing Inventory = $307,200
Purchases = $3,396,880
Cost of Goods Sold = $3,264,680
Gross Profit = $2,659,820
3.
As the prices are increasing the Inventory value using last-in, first-out will be lower because all the unit sold at last are sold and inventory of the old items which was purchased on the lower cost remains in the closing inventory. The cost of Goods sold will be higher in this case.
Explanation:
First In First out (FiFO) is an Inventory method which determines the inventory value and it requires that the unit purchased first will be sold first.
Cost of Goods Sold = Opening Inventory + Purchases - Closing Inventory
Cost of Goods Sold = $175,000 + $3,396,880 - $307,200 =
Gross Profit = Sales Value - Cost of Goods Sold
Gross Profit = $5,924,500 - $3,264,680
Gross Profit = $2,659,820
Inventory Working is made in a MS Excel File, which is attached with this answer please find it.
