Johnson Corporation began the year with inventory of 10,000 units of its only product. The units cost $8 each. The company uses a perpetual inventory system and the FIFO cost method. The following transactions occurred during the year: a. Purchased 50,000 additional units at a cost of $10 per unit. Terms of the purchases were 2/10, n/30, and 100% of the purchases were paid for within the 10-day discount period. The company uses the gross method to record purchase discounts. The merchandise was purchased f.o.b. shipping point and freight charges of $0.50 per unit were paid by Johnson. b. 1,000 units purchased during the year were returned to suppliers for credit. Johnson was also given credit for the freight charges of $0.50 per unit it had paid on the original purchase. The units were defective and were returned two days after they were received. c. Sales for the year totaled 45,000 units at $18 per unit. d. On December 28, Johnson purchased 5,000 additional units at $10 each. The goods were shipped f.o.b. desti- nation and arrived at Johnson's warehouse on January 4 of the following year. e. 14,000 units were on hand at the end of the year. Required: 1. Determine ending inventory and cost of goods sold at the end of the year. 2. Assuming that operating expenses other than those indicated in the above transactions amounted to $150,000, determine income before income taxes for the year. 3. For financial reporting purposes, the company uses LIFO (amounts based on a periodic inventory system). Record the year-end adjusting entry for the LIFO reserve, assuming the balance in the LIFO reserve at the beginning of the year is $15,000.
Johnson Corporation began the year with inventory of 10,000 units of its only product. The units cost $8 each. The company uses a perpetual inventory system and the FIFO cost method. The following transactions occurred during the year: a. Purchased 50,000 additional units at a cost of $10 per unit. Terms of the purchases were 2/10, n/30, and 100% of the purchases were paid for within the 10-day discount period. The company uses the gross method to record purchase discounts. The merchandise was purchased f.o.b. shipping point and freight charges of $0.50 per unit were paid by Johnson. b. 1,000 units purchased during the year were returned to suppliers for credit. Johnson was also given credit for the freight charges of $0.50 per unit it had paid on the original purchase. The units were defective and were returned two days after they were received. c. Sales for the year totaled 45,000 units at $18 per unit. d. On December 28, Johnson purchased 5,000 additional units at $10 each. The goods were shipped f.o.b. desti- nation and arrived at Johnson's warehouse on January 4 of the following year. e. 14,000 units were on hand at the end of the year. Required: 1. Determine ending inventory and cost of goods sold at the end of the year. 2. Assuming that operating expenses other than those indicated in the above transactions amounted to $150,000, determine income before income taxes for the year. 3. For financial reporting purposes, the company uses LIFO (amounts based on a periodic inventory system). Record the year-end adjusting entry for the LIFO reserve, assuming the balance in the LIFO reserve at the beginning of the year is $15,000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:**P 8-4 Various Inventory Transactions; Determining Inventory and Cost of Goods; LIFO Reserve**
**Learning Objectives:**
- LO8-1 through LO8-4, LO8-6
**Johnson Corporation** began the year with inventory of 10,000 units of its only product. The units cost $8 each. The company uses a perpetual inventory system and the FIFO cost method. The following transactions occurred during the year:
a. Purchased 50,000 additional units at a cost of $10 per unit. Terms of the purchases were 2/10, n/30, and 100% of the purchases were paid for within the 10-day discount period. The company uses the gross method to record purchase discounts. The merchandise was purchased f.o.b. shipping point and freight charges of $0.50 per unit were paid by Johnson.
b. 1,000 units purchased during the year were returned to suppliers for credit. Johnson was also given credit for the freight charges of $0.50 per unit it had paid on the original purchase. The units were defective and were returned two days after they were received.
c. Sales for the year totaled 45,000 units at $18 per unit.
d. On December 28, Johnson purchased 5,000 additional units at $10 each. The goods were shipped f.o.b. destination and arrived at Johnson’s warehouse on January 4 of the following year.
e. 14,000 units were on hand at the end of the year.
**Required:**
1. Determine ending inventory and cost of goods sold at the end of the year.
2. Assuming that operating expenses other than those indicated in the above transactions amounted to $150,000, determine income before income taxes for the year.
3. For financial reporting purposes, the company uses LIFO (amounts based on a periodic inventory system). Record the year-end adjusting entry for the LIFO reserve, assuming the balance in the LIFO reserve at the beginning of the year is $15,000.
4. Determine the amount the company would report as income before taxes for the year under LIFO. Operating expenses other than those indicated in the above transactions amounted to $150,000.
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