Question

Cement Company, Inc. began the first quarter with 1,000 units of inventory costing $25 per unit. During the first quarter, 3,000 units were purchased at a cost of $40 per unit, and sales of 3,400 units at $65 per units were made. During the second quarter, the company expects to replace the units of beginning inventory sold at a cost of $45 per unit. Cement Company uses the LIFO method to account for inventory. What is the correct journal entry to record cost of goods sold at the end of the first quarter

Answer 1

Answer:

Calculation of Cost of Goods sold under LIFO:

For 3,000 units (3000*40)                                      $120,000

For 400 units (400*25)                                              $10,000

Add: Excess of replacement cost over historical     $8,000

cost of LIFO liquidation (400*(45-25))                    

Cost of Goods sold under LIFO                                $138,000

                                     Journal entry  

Date    Account Titles and Explanation       Debit           Credit

            Cost of Goods sold                        $138,000

                     Inventory  (120000+10000)             $130,000

                     Excess of replacement cost over              $8,000

                     historical cost of LIFO liquidation