Supplemental Instruction Handouts
Financial Accounting
Chapter 6: Merchandise Inventory and Cost of Sales:
Periodic Answer Key
1. January 1st Beginning Inventory
January 12th Purchased
January 16th Purchased
January 31st Purchased
150 units @ $7.00 each
200 units @ $9.50 each
350 units @ $8.50 each
150 units @ $10.00 each
Total Units Purchased = 850
Total Purchased =
= $1,050
= $1,900
= $2,975
= $1,500
$7,425
The company sold 750 units @ $18.00 each = $13,500 (Sales Revenue)
Units Remaining in Ending Inventory = 850 units purchased – 750 units sold =
100 units in ending inventory
Required:
Using the information above to calculate the value of the ending inventory, the value for
for cost of goods sold, and the gross profit using:
a) FIFO = First In First Out
Value of the Ending Inventory = 100 units x $10 (January 31st purchase) = $1,000
Cost of Goods Sold = $7,425 (Total Purchased) - $1,000 (Ending Inventory) = $6,425
Gross Profit = $13,500 (Sales Revenue) - $6,425 (Cost of Goods Sold) = $7,075
b) Weighted Average rounded to 2 decimal places.
Weighted Average = $7,425 (Total Purchased) ÷ 850 (Total Units Purchased) =
$8.74/unit
Value of Ending Inventory = $8.74/unit x 100 units = $874
Cost of Goods Sold = $7,425 (Total Purchased) - $874 (Ending Inventory) = $6,551
Gross Profit = $13,500 (Sales Revenue) - $6,551 (Cost of Goods Sold) = $6,949
Academic Success Centre
www.rrc.mb.ca/asc
This answer key has been created by Michael Reimer for the Academic Success Centre
2. Use the following information to calculate ending inventory using the gross profit
method.
Beginning Merchandise Inventory January 1st
Purchases
Purchase Returns & Allowances
Transportation – In
Ending Merchandise Inventory, December 31st
Sales
Sales Returns & Allowances
$5,500
$75,750
$2,500
$3,500
$?
$150,000
$2,500
The company uses a gross profit of 50%.
Step 1: Calculate Net Purchases:
Purchases
Purchase Returns & Allowances
Transportation – In
Net Purchases
$75,750
(2,500)
3,500
$76,750
Step 2: Calculate Goods Available for Sale:
Beginning Merchandise Inventory, January 1st
Net Purchases
Goods Available for Sale
$5,500
76,750
$82,250
Step 3: Calculate Net Sales:
Sales
$150,000
Sales Returns & Allowances
(2,500)
Net Sales
$147,500
Step 4: Calculate Cost of Goods Sold:
$147,500 (Net Sales) x (1 – 0.50) (1 – Gross Profit %) = $147,500 x 0.50 = $73,750
Step 5: Calculate Ending Inventory:
Goods Available for Sale
Cost of Goods Sold
Ending Inventory
$82,250
(73,750)
$8,500
Academic Success Centre
www.rrc.mb.ca/asc
This answer key has been created by Michael Reimer for the Academic Success Centre
3. a) Calculate the lowest of cost or market per product and for the inventory as a whole on
the following set of products:
Product # of Units
Cost
NRV
A
B
C
$20.00
$12.00
$14.00
$22.00
$11.00
$12.00
Totals
25
35
15
Total
Cost
$500
$420
$210
Total
NRV
$550
$385
$180
Cost Per Cost as
Product a Whole
$500
$385
$180
$1,130 $1,115 $1,065
$1,115
b) Provide the adjusting journal required to reduce the merchandise inventory down to
the lower of cost or NRV for the cost per product calculation on December 31st:
Date
Dec 31
General Journal
Account Titles and Explanations
Cost of Goods Sold ($1,130 - $1,065)
Merchandise Inventory
PR
Page ____
Credit
Debit
65
Academic Success Centre
www.rrc.mb.ca/asc
This answer key has been created by Michael Reimer for the Academic Success Centre
65