Chapter 6, Problem 6.31BE

 LO1, 2

(Learning Objectives 1, 2: Show how to account for inventory transactions; apply the FIFO cost method) Spear Corporation’s inventory records for its retail division show the following at May 31:

May 1	Beginning inventory ..............	10 units@ $160 = $1,600
15	Purchase ................................	5 units @ 161 = 805
26	Purchase ................................	14 units @ 170 = 2,380

 At May 31, 11 of these units are on hand. Journalize the following for Spear Corporation under the perpetual system.

  1.    Total May purchases in one summary entry. All purchases were on credit.

  2.    Total May sales and cost of goods sold in two summary entries. The selling price was $560 per unit, and all sales were on credit. Assume that Spear uses the FIFO inventory method.

  3.    Under FIFO, how much gross profit would Spear earn for the month ending May 31? What is the FIFO cost of Spear Corporation’s ending inventory?

LO 2

 E6-31B. (Learning Objective 2: Compare ending inventory and cost of goods sold using four methods) Use the data for Spear Corporation in E6-30B to answer the following.

Requirements

  1.    Compute cost of goods sold and ending inventory using each of the following methods:

  a.    Specific identification with seven $160 units and four $170 units still on hand at the end

  b.    Average cost

  c.    FIFO

  d.    LIFO

  2.    Which method produces the highest cost of goods sold? Which method produces the lowest cost of goods sold? What causes the difference in cost of goods sold?