Question

Spade Furnishings are retailers who purchase and sell household furnishings, including table lamps. The business uses a perpetual inventory system and adjusts cost of goods sold for any shortage or excess inventory. The business began the last quarter of 2018 with merchandise inventory of 10 pairs of “Italia” table lamps at a total cost of $168,200.
The following transactions, relating to the “Italia” brand were completed during the quarter:

October 5	Purchased 15 pairs of lamps at a cost of $17,020 per pair
October 14	Sold 18 pairs of lamps to Mold Furnishings at $22,250 per pair
October 22	Purchased 24 pairs at a cost of $18,175 per pair but the supplier gave a 4% quantity discount
November 10	Sold 15 pairs of lamps to Onion Household Ltd and 10 pairs to Brown’s Furnishings which yielded total sales revenue of $589,750.
November 12	Owing to an increased demand for this product, 30 pairs of lamps were purchased on account at a cost of $17,612 per pair. In addition, Spade paid $288 in cash on each pair of lamps to have the inventory shipped from the vendor’s warehouse to Spade's showroom
November 27	Sold 23 pairs of lamps to Mud house Company at a price of $25,080 per pair
November 30	An actual count of inventory was carried out which revealed that there were 15 pairs of the “Italia” brand in the warehouse
December 2	In preparation for the festive season, Spade purchased 25 pairs of lamps at a total cost of $474,500
December 15	5 pairs of the lamps purchased on December 2 were returned to the supplier, as they were not of the brand ordered.
December 30	Sold 22 pairs of lamps to two customers (Old Traders & Mild Furnishings) at a selling price of $26,550 per pair.

All purchases were on account and received on the dates stated.
Required:
i) Prepare a perpetual inventory record for Spade Furnishings, using the first in, first out (FIFO) method to determine the value of ending inventory at December 31, 2018, and the total amount to be assigned to cost of goods sold for the period.
ii) Given that selling, distribution and administrative costs for the quarter were $23,445, $10,250 and$75,435 respectively, prepare an income statement for Spade Furnishings for the period, to determine the net profit for the quarter, assuming the perpetual inventory system.
iii) You are told that 8 pairs of lamps sold on November 27, 2018 were on account. State the journal entries necessary to record the transactions on November 12 and November 27, assuming the business uses a: - Perpetual inventory system
- Periodic inventory system
iv) Assuming that Spade sold 86 pairs of “Italia” brand of lamps during the quarter; determine the value of ending inventory and cost of goods sold assuming the business used the periodic system and the LIFO method?

Answer 1

Workong notes

1.The increase in the value of closing stock under the LIFO method as compared to FIFO method is beacause increased. Cost of perchase at the beginning as campared to cost of good purchased inlater parts

2.The increase in inventory is count is adjusted by transferring to Cost of goods sold it means the value of existing inventory in books is allocated to revised pairs of inventory.

3.In FIFO forst opening inventory is sold and then the purchase that are purchased earlier are sold. On the other hand under LIFo latest purchases are sold first and then the old purchases and opeing stock.