
1. (a)
Calculate the following using FIFO method.
- Sales Revenue
- Cost of Goods Sold
- Ending Inventory
1. (a)

Explanation of Solution
First-in-First-Out:
In First-in-First-Out method, the costs of the initially purchased items are considered as cost of goods sold, for the items which are sold first. The value of the ending inventory consists of the recent purchased items.
- Compute the sales revenue:
Date | Number of units | Cost per unit ($) | Total Amount($) |
July, 31 | 40 | 500 | 20,000 |
August, 22 | 30 | 500 | 15,000 |
November, 20 | 90 | 500 | 45,000 |
December, 8 | 40 | 500 | 20,000 |
Total | 200 | 100,000 |
Table (1)
Note:
Therefore, the total sales revenue is $100,000.
- Compute the cost of goods sold.
Cost of goods sold:
Cost of goods sold is the accumulate total of all direct cost incurred in manufacturing the goods or the products which has been sold during a period. Cost of goods sold involves direct material, direct labor, and manufacturing
- 200 units are sold.
- As it is FIFO method the earlier purchased items will be sold first.
- Hence, the cost of goods sold will be the earlier purchased items.
Calculation of cost of goods sold | |||
Details | Number of Units | Rate per unit ($) | Total Cost ($) |
July, 17 | 50 | 150 | 7,500 |
August, 12 | 40 | 160 | 6,400 |
October, 27 | 80 | 170 | 13,600 |
December, 4 | 30 | 180 | 5,400 |
Total | 200 | 32,900 |
Table (2)
Therefore, the cost of goods sold is $32,900.
- Compute the cost of ending inventory:
Ending Inventory:
Ending inventory is the quantity of inventory that the company has in stock at the end of its financial year.
Calculate the units of ending inventory:
Calculate the cost of ending inventory:
- The ending inventory is 70 units.
- In FIFO method the ending inventory comprises of the inventory purchased last, because the inventory purchased first were sold first.
- Therefore, the ending inventory of 70 units from December 4th purchases.
Calculation of cost of ending inventory | |||
Details | Number of Units | Rate per Unit ($) | Total Cost ($) |
December, 4 | 70 | 180 | 12,600 |
Ending Inventory | 70 | 12,600 |
Table (3)
Therefore, the cost of Ending Inventory in the FIFO is $12,600.
(b)
Prepare a gross profit section of a partial income statement of G Adventures.
(b)

Explanation of Solution
The gross profit section of a partial income statement of G Adventures is prepared as follows:
G Adventures, Incorporation | |
Partial Income Statement | |
For the year ended December 31,2022 | |
Details | Amounts ($) |
Sales Revenue | 100,000 |
Less: Cost of Goods Sold | 32,900 |
Gross Profit | 67,100 |
Table (4)
Therefore, the gross profit of G Adventure is $67,100.
2. (a)
Record the cost of goods sold.
2. (a)

Explanation of Solution
Periodic Inventory System:
Periodic inventory system is a system, in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.
Lower-of-cost-or-market value:
The lower-of-cost-or-market value is a method which requires the reporting of the ending merchandise inventory in the financial statement of a company, at its current market value (net realizable value) or at its historical cost price, whichever is less.
Record the cost of goods sold:
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
Cost of Goods Sold (1) | 5,600 | |||
Inventory | 5,600 | |||
(To record the LIFO adjustment) |
Table (5)
- Cost of Goods Sold is expense and increased which will decrease the equity. Therefore, debit the cost of goods sold account with $5,600.
- Merchandised inventory is an asset and decreased. Therefore, credit the merchandised inventory account with $5,600.
Compute the amount of ending inventory using lower-of-cost-or-market value method.
Computation of Ending Inventory – Lower-of-cost-or-market Value Method | ||||||
Inventories |
Quantity (Units) | Rate Per Unit($) | Total Cost($) |
LCM ($) | ||
Cost Price ($) | Market Price ($) | Cost Price ($) | Market Price ($) | |||
MU Watches | 70 | 180 | 100 | 12,600 | 7,000 | 7,000 |
Total | 7,000 |
Table (6)
Therefore, the amount of ending inventory in LCM is $7,000.
Note:
Working note:
Compute the write- down inventory:
(b)
Ascertain the amount that MU inventory would report in the December 31, 2022
(b)

Explanation of Solution
G Adventures should report lower of cost price or market price of the inventories in its balance sheet. Therefore, G Adventures should report $7,000.
(c)
Prepare an updated gross profit section of a partial income statement of G Adventures.
(c)

Explanation of Solution
Compute the partial income statement of G Incorporation:
G Adventures, Incorporation | |
Partial Income Statement | |
For the year ended December 31,2022 | |
Details | Amounts ($) |
Sales Revenue | 100,000 |
Less: Cost of Goods Sold | 38,500(2) |
Gross Profit | 61,500 |
Table (7)
Working note:
Compute the updated gross profit section of G Adventures:
Therefore, the gross profit of G Adventure is $21,500.
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