Question

homework: chapter 6 part b
question
part 8 of 6
completed: 7 of 12
my score: 7.79/12 pts (64.88%)
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spear companys inventory records for its reta
view the accounting records.
at may 31, 11 of these units are on hand.
read the requirements.
accounting records
may 1 beginning inventory 10 units @ $180 = $1,800
may 15 purchase 5 units @ $181 = $905
may 26 purchase 14 units @ $170 = $2,380
requirement 2. journalize for spear total may sales and cost of goods sold in two summary entries, under the perpetual system. the selling price was $360 per unit and all sales were on credit. assume that spear uses the fifo inventory method. (record debits first, then credits. exclude explanations from any journal entries.)
lets start by recording the entry for may sales. do not yet record the cost related to the sale. we will do this in the next journal entry.
accounts debit credit
accounts receivable 10,080
sales revenue 10,080
now record the entry for the cost of inventory sold assuming fifo.
accounts debit credit
cost of goods sold 2,915
inventory 2,915
requirement 3. under fifo, how much gross profit would spear earn on for the month ending may 31? what is the fifo cost of spear companys ending inventory?
the gross profit earned on these transactions = $ 7,165
the fifo cost of ending inventory =

Explanation:

Step1: Calculate total units available

First, find the total number of units available for sale. Add the beginning inventory and all purchases: \( 10 + 5 + 14 = 29 \) units.

Step2: Determine units sold

We know 11 units are on hand at May 31, so units sold = total units - ending units = \( 29 - 11 = 18 \) units.

Step3: Calculate cost of goods sold (FIFO)

Using FIFO, we sell the oldest units first.

• Beginning inventory: 10 units @ $160 = \( 10 \times 160 = 1600 \)
• May 15 purchase: 5 units @ $161 = \( 5 \times 161 = 805 \)
• May 26 purchase: We need \( 18 - 10 - 5 = 3 \) units @ $170 = \( 3 \times 170 = 510 \)

Total COGS = \( 1600 + 805 + 510 = 2915 \) (matches the given entry, so we can use this for gross profit and ending inventory).

Step4: Calculate gross profit

Sales revenue is $10,080 (from the sales entry). Gross profit = Sales - COGS = \( 10080 - 2915 = 7165 \) (already given, so we focus on ending inventory).

Step5: Calculate ending inventory (FIFO)

Ending inventory is 11 units. Using FIFO, these are the most recent units left.

• May 26 purchase: 14 units, we sold 3, so remaining from May 26: \( 14 - 3 = 11 \) units? Wait, no: total sold is 18, we used 10 (May1) +5 (May15)+3(May26)=18. So ending inventory is from May26: 14 - 3 = 11? Wait, no: total units available 29, sold 18, ending 11. So after selling 10 (May1) +5 (May15) +3 (May26), the remaining are from May26: 14 - 3 = 11? Wait, no, 10+5+14=29. Sold 18, so 29-18=11. So the ending inventory is 11 units from the May26 purchase (since we sold the earlier ones first). Wait, no: May26 has 14 units. We sold 3 from May26 (because 10+5=15, need 3 more to reach 18). So May26 remaining: 14 - 3 = 11. So cost of ending inventory is \( 11 \times 170 = 1870 \). Wait, but let's check again. Wait, total units:

Beginning:10, May15:5, May26:14. Total:29. Ending:11, so sold:18.
FIFO: sell 10 (May1) +5 (May15) +3 (May26). So remaining: May26:14 - 3 = 11. So ending inventory cost: 11 * 170 = 1870.

Wait, but let's verify with the COGS. COGS was 10160 +5161 +3170 = 1600 + 805 + 510 = 2915. Total cost of goods available: 10160 +5161 +14170 = 1600 + 805 + 2380 = 4785. Then ending inventory should be 4785 - 2915 = 1870. Yes, that matches. So ending inventory cost is 1870.

Answer:

The FIFO cost of ending inventory = \(\$1870\)