Boston Cycles started October with 12 bicycles that cost $42 each. On October 16, Boston bought 40 bicycles at $68 each. On October 31, Boston sold 34 bicycles for $100 each. Preparing a perpetual inventory record and journal entries—FIFO Requirements

1.PrepareBostonCycle’ FIFO inventory costing method.
2. Journalize the October 16 purchase of merchandise inventory on account and the October 31 sale of merchandise inventory on account.

S6-5 Preparing a perpetual inventory record and journal entries—LIFO Requirements

1. PrepareBostonCycle’ LIFO inventory costing method.
2. Journalize the October 16 purchase of merchandise inventory on account and the October 31 sale of merchandise inventory on account.

Refer explanation

Explanation:

1st Oct : Beginning inventory : 12 units x $42 = $504

16th Oct : Purchases : 40 units x $68 = $2,720

31st Oct : Sales : 34 units x $100 = $3,400

Total inventory = 12 + 40 = 52 units

A. FIFO (First-In-First-Out) is a method of inventory valuation where the stock that is purchased first is used first. In other words, the oldest stock is used first. This is common for perishable items which if not used up fast, will be wasted.

The cost of goods sold using FIFO:

12 units x $42 = $504

22 units x $68 = $1496

COGS = $1496 + $504 = $2000 (34 units)

Ending inventory :

(40 - 22) x $68 = $1,224 (18 units)

B. LIFO (Last-In-First-Out) is a method of inventory valuation where the inventory that is received last is sold first. This is common for bulk goods that are stacked one on top of the other.

The cost of goods sold using LIFO:

34 units x $68 = $2312

COGS = $2312 (34 units)

Ending inventory:

(40 - 34) x $68 = $408

12 units x $42 = $504

Ending inventory : $408 + $504 = $912 (18 units)

Double entry for Oct 16, purchase of merchandise...

Oct 16 : Purchases account : $2720 (Dr)

Oct 16 : Accounts Payables account : $2720 (Cr)

Double entry for Oct 31 sale of merchandise...

Oct 31 : Accounts Receivables account : $3,400 (Dr)

Oct 31 : Sales : $3,400 (Cr)

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