Problem 5-20B: Allocating Product Costs Between Cost of Goods Sold and Ending Inventory: Intermittent Purchases and Sales of Merchandise
Donovan, Inc. had the following sales and purchase transactions during Year 2. Beginning inventory consisted of 120 items at $80 each. Donovan uses the FIFO cost flow assumption and keeps perpetual inventory records.
| Date | Transaction Description |
|---|---|
| Mar. 5 | Purchased 100 items @ $90 |
| Apr. 10 | Sold 70 items @ $175 |
| June 19 | Sold 80 items @ $175 |
| Sep. 16 | Purchased 50 items @ $95 |
| Nov. 28 | Sold 60 items @ $180 |
Required
a. Record the inventory transactions in general journal format.
b. Calculate the gross margin Donovan would report on the Year 2 income statement.
c. Determine the ending inventory balance Donovan would report on the December 31, Year 2, balance sheet.
Problem 5-21B: Inventory Valuation Based on the Lower-of-Cost-or-Market Rule
At the end of the year, Ronaldo Jewelers had the following items in inventory:
| Item | Quantity | Unit Cost | Unit Market Value |
|---|---|---|---|
| D1 | 30 | $80 | $90 |
| D2 | 10 | $60 | $55 |
| D3 | 41 | $30 | $32 |
| D4 | 20 | $90 | $75 |
Required
a. Determine the amount of ending inventory using the lower-of-cost-or-market rule applied to each individual inventory item.
b. Provide the general journal entry necessary to write down the inventory based on Requirement a. Assume that Ronaldo Jewelers uses the perpetual inventory system.
c. Determine the amount of ending inventory, assuming that the lower-of-cost-or-market rule is applied to the inventory in aggregate.
d. Provide the general journal entry necessary to write down the inventory based on Requirement c. Assume that Ronaldo Jewelers uses the perpetual inventory system.
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