Required information Exercise 5-5 (Algo) Effect of inventory cost flow on ending inventory balance and gross margin LO 5-1 [The following information applies to the questions displayed below.] The Shirt Shop had the following transactions for T-shirts for Year 1, its first year of operations: January 20 April 21 July 25 September 19 Purchased 400 units @ $4= Purchased 90 units @ $5 = Purchased 250 units @ $7 = Purchased 60 units @ $9 = During the year, The Shirt Shop sold 650 T-shirts for $14 each. $1,600 450 1,750 540

Required information Exercise 5-5 (Algo) Effect of inventory cost flow on ending inventory balance and gross margin LO 5-1 [The following information applies to the questions displayed below.] The Shirt Shop had the following transactions for T-shirts for Year 1, its first year of operations: January 20 April 21 July 25 September 19 Purchased 400 units @ $4= Purchased 90 units @ $5 = Purchased 250 units @ $7 = Purchased 60 units @ $9 = During the year, The Shirt Shop sold 650 T-shirts for $14 each. $1,600 450 1,750 540

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Description: Required informationExercise 5-5 (Algo) Effect of inventory cost flow on ending inventory balance and gross margin LO 5-1[The following information applies to the questions displayed below.]The Shirt Shop had the following transactions for T-shirts

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

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Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Concept explainers

Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.

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Required information
Exercise 5-5 (Algo) Effect of inventory cost flow on ending inventory balance and gross margin LO 5-1
[The following information applies to the questions displayed below.]
The Shirt Shop had the following transactions for T-shirts for Year 1, its first year of operations:
Purchased 400 units @ $4 =
Purchased 90 units $5 =
$ 1,600
450
January 20
April 21
July 25
September 19
Purchased 250 units @ $7 =
Purchased 60 units @ $9 =
During the year, The Shirt Shop sold 650 T-shirts for $14 each.
Exercise 5-5 (Algo) Part a
Required
a. Compute the amount of ending inventory The Shirt Shop would report on the balance sheet, assuming the following cost flow
assumptions: (1) FIFO, (2) LIFO, and (3) weighted average.
Note: Round intermediate calculations to 2 decimal places and final answers to nearest whole dollar amount.
Ending inventory
FIFO
$
LIFO
450
1,750
540
Weighted
Average

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Required information Exercise 5-5 (Algo) Effect of inventory cost flow on ending inventory balance and gross margin LO 5-1 [The following information applies to the questions displayed below.] The Shirt Shop had the following transactions for T-shirts for Year 1, its first year of operations: January 20 April 21 July 25 September 19 Purchased 330 units @ $10 = Purchased 80 units @ $11 = Purchased 210 units @ $13 = Purchased 60 units @ $14 = During the year, The Shirt Shop sold 520 T-shirts for $19 each. Exercise 5-5 (Algo) Part b b. Compute the difference in gross margin between the FIFO and LIFO cost flow assumptions. Gross margin FIFO LIFO $ 3,300 880 2,730 840 Difference
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