Johnson Corporation began the year with inventory of 29,000 units of its only product. The units cost $9 each. The company uses a perpetual inventory system and the FIFO cost method. The following transactions occurred during the year: Purchased 145,000 additional units at a cost of $12 per unit. Terms of the purchases were 1/10, 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. 2,900 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. Sales for the year totaled 140,000 units at $18 per unit. On December 28, Johnson purchased 6,900 additional units at $12 each. The goods were shipped f.o.b. destination and arrived at Johnson’s warehouse on January 4 of the following year. 31,100 units were on hand at the end of the year. Required: Determine ending inventory and cost of goods sold at the end of the year. Assuming that operating expenses other than those indicated in the above transactions amounted to $188,000, determine income before income taxes for the year. 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 $18,800. 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 $188,000.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Johnson Corporation began the year with inventory of 29,000 units of its only product. The units cost $9 each. The company uses a perpetual inventory system and the FIFO cost method. The following transactions occurred during the year:

Purchased 145,000 additional units at a cost of $12 per unit. Terms of the purchases were 1/10, 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.
2,900 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.
Sales for the year totaled 140,000 units at $18 per unit.
On December 28, Johnson purchased 6,900 additional units at $12 each. The goods were shipped f.o.b. destination and arrived at Johnson’s warehouse on January 4 of the following year.
31,100 units were on hand at the end of the year.

Required:

Determine ending inventory and cost of goods sold at the end of the year.
Assuming that operating expenses other than those indicated in the above transactions amounted to $188,000, determine income before income taxes for the year.
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 $18,800.
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 $188,000.

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