TUTORIAL TEST 8

SOLUTION

Requirement 1

General Journal
Date Reference Dr. Cr.
Feb. 2 Cash 600
Revenue 600

Cost of goods sold (60 x $5) 300

Inventory 300

5 Inventory (50 x $6) 300

Accounts Payable 300

7 Cash 450
Revenue (45 x $10) 450

Cost of goods sold ( 34 x $5 + 11 x $6) 236

Inventory 236

8 Cash 200
Revenue ( 20 x $10) 200

Cost of goods sold (20 x $6) 120

Inventory 120

10 Inventory (60 x $7) 420

Accounts Payable 420

13 Cash 200
Revenue (20 x $10) 200
 Cost of goods sold (19 x $6 + 1 x $7) 121
Inventory 121

15 Inventory (50 x $8) 400

Accounts Payable 400

20 Inventory (150 x $10) 1,500

Accounts Payable 1,500

27 Cash 1,800
Revenue (180 x $10) 1,800

Cost of goods sold (59 x $7 + 50 x $8 + 71 x $10) 1,523

Inventory 1,523

Requirement 2

Date. Feb Purchases quantity Unit costs Total costs

5 50 6 300
10 60 7 420
15 50 8 400
20 150 10 1,500
Total 310 2,620

Sales
Date. Feb Sales quantity
2 60
7 45
8 20
13 20
27 180
Total 325
 Canyon Canoe Company
Condensed Statement of Profit or Loss
For the Month Ended 28 February 2019
FIFO LIFO
Sales 3,250 3,250
COS
Beginning Balance 470 470
Cost of goods purchased 2,340 2,340
Costs of good available for sale 2,810 2,810
Ending inventory 790(*) 395(**)
Cost of goods sold 2,020 2,415
Gross profit 1,230 835

Ending inventory in Units = 94 + 310 – 325 = 79

(*) Ending inventory = 79 x $10 = $790
(**) Ending inventory = 79 x $5 = $395

(b) Answer the following questions for management.

(1) The FIFO method produces the most meaningful inventory amount for the balance sheet
because the units are costed at the most recent purchase prices.

(2) The LIFO method produces the most meaningful net income because the costs of the most recent
purchases are matched against sales.

(3) The FIFO method is most likely to approximate actual physical flow because the oldest goods
are usually sold first to minimize spoilage and obsolescence.

(4) Gross profit under the average cost method will be: (a) lower than FIFO and (b) higher than
LIFO.