Question

spear company’s inventory records for its rela
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 @ $160 = $1,600
may 15 purchase 5 units @ $161 = $805
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 $560 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.)
let’s 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 company’s ending inventory?
the gross profit earned on these transactions =

Explanation:

Step1: Calculate Total Units Available and Sold

First, find total units available: \(10 + 5 + 14 = 29\) units. Units on hand at May 31: 11 units. So units sold: \(29 - 11 = 18\) units.

Step2: Calculate Total Sales Revenue

Selling price per unit: \(\$560\). Total sales revenue: \(18 \times 560 = \$10,080\) (matches the given sales entry).

Step3: Calculate Cost of Goods Sold (FIFO)

Under FIFO, sell oldest units first.

• May 1: 10 units @ \(\$160\): \(10 \times 160 = \$1,600\)
• May 15: 5 units @ \(\$161\): \(5 \times 161 = \$805\)
• May 26: Remaining units sold: \(18 - 10 - 5 = 3\) units @ \(\$170\): \(3 \times 170 = \$510\)

Total COGS: \(1600 + 805 + 510 = \$2,915\) (matches the given COGS entry).

Step4: Calculate Gross Profit

Gross Profit = Sales Revenue - Cost of Goods Sold.
Sales: \(\$10,080\), COGS: \(\$2,915\).
Gross Profit: \(10080 - 2915 = \$7,165\).

Answer:

The gross profit earned on these transactions is \(\$7,165\).