Thraya Industries had the following transactions in the month of March. Thraya uses a perpetual inventory system to account for its inventory transactions. All sales and purchases are on account. Date Units Unit Cost Unit Sales Price Mar. 1 Beginning inventory 2,000 litres $6.15/l Mar. 3 Purchase 2,500 litres $6.21/l Mar. 5 Sale 2,300 litres $10.50/l Mar. 10 Purchase 4,000 litres $6.72/l Mar. 20 Purchase 2,500 litres $6.94/l Mar. 30 Sale 5,200 litres $12.50/l Calculate the cost of goods sold, ending inventory, and gross profit for March using the weighted average (WA) method. Round the per-unit cost to two decimal places. Prepare journal entries to record the purchases and sales from parts B and C. Assume all purchases and sales are made on account. Answer the following questions for management. Which inventory method (FIFO or WA) produces the more meaningful inventory amount for the balance sheet? Why? Which inventory method (FIFO or WA) produces the more meaningful cost of goods sold amount for the income statement? Why? Which inventory method (specific identification, FIFO, or WA) is more likely to approximate the actual physical flow of goods? Why? Based on your calculations in A, B, and C, which method produced the highest profit?

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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Thraya Industries had the following transactions in the month of March. Thraya uses a perpetual inventory system to account for its inventory transactions. All sales and purchases are on account.

Date		Units	Unit Cost	Unit Sales Price
Mar. 1	Beginning inventory	2,000 litres	$6.15/l
Mar. 3	Purchase	2,500 litres	$6.21/l
Mar. 5	Sale	2,300 litres		$10.50/l
Mar. 10	Purchase	4,000 litres	$6.72/l
Mar. 20	Purchase	2,500 litres	$6.94/l
Mar. 30	Sale	5,200 litres		$12.50/l

Calculate the cost of goods sold, ending inventory, and gross profit for March using the weighted average (WA) method. Round the per-unit cost to two decimal places.
Prepare journal entries to record the purchases and sales from parts B and C. Assume all purchases and sales are made on account.
Answer the following questions for management.

Which inventory method (FIFO or WA) produces the more meaningful inventory amount for the balance sheet? Why?
Which inventory method (FIFO or WA) produces the more meaningful cost of goods sold amount for the income statement? Why?
Which inventory method (specific identification, FIFO, or WA) is more likely to approximate the actual physical flow of goods? Why?
Based on your calculations in A, B, and C, which method produced the highest profit?

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