Shepherd Cycles sells a variety of bicycles. The business which uses the FIFO method, began the last quarter of 2013 (October 1 to December 31) with 20 "Iron Man 2" bicycles at a total cost of $122,000. During the quarter, the company completed the following transactions.
October 8 105 bicycles were purchased at a cost of $5,920 each but in addition there was a freight charge of $480 on each bicycle. October 31 The sales for October were 85 bicycles which yielded total sales revenue of $761,600. ( 15 of these units were sold on account) November 4 A new batch of 60 bicycles was purchased at a total cost of $408,000
November 10 5 of the bicycles purchased on November 4 were returned to the supplier, as they were defective. November 30 During the month 57 bicycles were sold at a price of $9,520 each.
December 4 A customer, to whom 9 bicycles were sold during the first business day of November, returned 4 of the cycles. December 10 Owing to an increased demand, a further 115 bicycles were purchased at a cost of $7,600 each; these were subject to a trade discount of 5% each. December 31 122 bicycles were sold during December at a unit selling price of $10,100.
December 31 An actual count of inventory was carried out which revealed that there were 28 units of the merchandise in the store room. All purchases were on account and received on the dates stated.
Required:
- Prepare a perpetual inventory record for this merchandise, to determine the company's cost of goods sold for the quarter and the value of ending.
- Given that selling & distribution and administrative costs for the quarter were $214,940 and$103,760 respectively, prepare an income statement for Shepherd Cycles for the quarter ended December 31, 2013.
- Journalize the October transactions, assuming the company uses a: - Periodic inventory system - Perpetual inventory system
- The manager of Shepherd's has stated that his objective is to cut back on his tax liability and is of the view that the FIFO method is best. Do you agree with him?
- Part b
- Carpet Warehouse began the year with inventory of $350,000. During the year, the business made net purchases of $1,600,000 and had net sales of $2,500,000. For the past several years, Fuller's gross profit has been 30% of sales. Use the gross profit method to estimate the cost of the ending inventory for the monthly financial statements.