ACCT 201 Principles of Financial Accounting Practice Exam - Chapter 5 Reporting & Analyzing Inventories Dr. Fred Barbee Solution to Problem #1

Smith Company reported the following current-year data for its only product:

Jan. 1	Beginning Inventory	200	Units @ $10	$2,000
Mar. 14	Purchase	350	Units @ $15	5,250
Jul. 30	Purchase	450	Units @ $20	9,000
Oct. 26	Purchase	700	Units @ $25	17,500
Units Available		1,700	Units
Cost of Goods Available for Sale				$33,750

Smith resold its products at $40 per unit on the following dates:

Jan. 10	Sales	100	units
Mar. 15	Sales	150	units
Oct. 5	Sales	310	units
Total Sales		560	units

Smith uses a perpetual inventory system. Determine the costs assigned to cost of goods sold and ending inventory using (a) FIFO and (b) LIFO. Compute the gross margin for each method.

Solution