On May 1, Pharoah Company had 430 units of inventory on hand, at a cost of $4.00 each. The company uses a perpetual inventory system. All purchases and sales are on account. A record of inventory transactions for the month of May for the company is as follows:

Purchases



Sales

May 4

1,500

@

$4.20

May 3

250

@

$7.00

14

780

@

$4.30

16

1,100

$7.00

29

400

@

$4.75

18

570

@

$7.50

(a)

Your Answer

Correct AnswerCalculate the cost of goods sold and ending inventory using FIFO. Prepare journal entries to record the May 4 purchase and the May 3 and 16 sales (Credit account titles are automatically inc when the amount is entered. Do not indent manually. If an entry is requíred, select "No Entry" for the account tites and enter O for the amounts List all debit entries before credit entries)

To solve this problem, we need to calculate the cost of goods sold (COGS) and ending inventory using the FIFO (First-In, First-Out) method, and prepare journal entries for the specified transactions.

### FIFO Calculation
1. **Beginning Inventory (May 1):**
   - 430 units @ $4.00 each

2. **Purchases:**
   - May 4: 1,500 units @ $4.20 each
   - May 14: 780 units @ $4.30 each
   - May 29: 400 units @ $4.75 each

3. **Sales:**
   - May 3: 250 units @ $7.00 each
   - May 16: 1,100 units @ $7.00 each
   - May 18: 570 units @ $7.50 each

#### Calculation of COGS and Ending Inventory:

##### May 3 Sale:
- 250 units sold from beginning inventory (430 units @ $4.00)
- COGS = 250 units * $4.00 = $1,000
- Remaining beginning inventory = 180 units (430 - 250) @ $4.00 each

##### May 4 Purchase:
- 1,500 units @ $4.20 each

##### May 16 Sale:
- 180 units from beginning inventory @ $4.00 each
- 920 units from May 4 purchase @ $4.20 each
- COGS = (180 units * $4.00) + (920 units * $4.20) = $720 + $3,864 = $4,584
- Remaining from May 4 purchase = 580 units (1,500 - 920) @ $4.20 each

##### May 14 Purchase:
- 780 units @ $4.30 each

##### May 18 Sale:
- 570 units from May 4 purchase @ $4.20 each
- COGS = 570 units * $4.20 = $2,394
- Remaining from May 4 purchase = 10 units (580 - 570) @ $4.20 each

##### May 29 Purchase:
- 400 units @ $4.75 each

##### Ending Inventory (as of May 31):
- 10 units @ $4.20 each from May 4 purchase
- 780 units @ $4.30 each from May 14 purchase
- 400 units @ $4.75 each from May 29 purchase
- Total ending inventory = (10 units * $4.20) + (780 units * $4.30) + (400 units * $4.75) = $42 + $3,354 + $1,900 = $5,296

### Journal Entries:
#### May 3 Sale:
- **Accounts Receivable** $250 units * $7.00$ = $1,750
- **Sales Revenue** $250 units * $7.00$ = $1,750
- **COGS** $250 units * $4.00$ = $1,000
- **Inventory** $250 units * $4.00$ = $1,000

Journal Entry:
```
Accounts Receivable      1,750
    Sales Revenue                1,750

COGS                          1,000
    Inventory                         1,000
```

#### May 4 Purchase:
- **Inventory** $1,500 units * $4.20$ = $6,300
- **Accounts Payable** $1,500 units * $4.20$ = $6,300

Journal Entry:
```
Inventory                  6,300
    Accounts Payable             6,300
```

#### May 16 Sale:
- **Accounts Receivable** $1,100 units * $7.00$ = $7,700
- **Sales Revenue** $1,100 units * $7.00$ = $7,700
- **COGS** = $4,584
- **Inventory** = $4,584

Journal Entry:
```
Accounts Receivable      7,700
    Sales Revenue                7,700

COGS                          4,584
    Inventory                         4,584
```

Let me know if you want more details or have any questions. 

Here are some questions you might want to ask:
1. How do I calculate LIFO instead of FIFO?
2. Can you show the journal entries for all sales transactions?
3. What are the differences between periodic and perpetual inventory systems?
4. How is the average cost method applied in inventory management?
5. What impact do different inventory methods have on financial statements?

**Tip:** Always double-check your calculations to ensure accuracy in inventory management, as errors can significantly impact financial reporting.

Learn how to calculate the cost of goods sold (COGS) and ending inventory using the FIFO (First-In, First-Out) method in inventory management. This detailed solution covers inventory transactions, purchases, and sales, providing step-by-step calculations for accurate financial reporting.

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