10 Inventory
Tracking Systems and Valuation Techniques
- My turn
- Spruce It Up Ltd. (SIU) sells Christmas trees seasonally in November and December. Each tree sells for $150, though SIU’s cost varies depending on supplier and proximity to Christmastime. SIU uses a perpetual inventory system and tracks inventory cost using FIFO. All purchases are made on account, and all sales are received in cash. SIU had no opening inventory and reports the following transactions for 20X3:
- November 1: purchase of 100 trees from Pine 4U for $50 per tree
- November 10: purchase of 60 trees from Fir Real for $65 per tree
- November 16: sale of 40 trees to C Corp.
- November 20: purchase of 20 trees from Pine 4U for $55 per tree
- November 25: sale of 70 trees to D Corp
- November 30: payment of all amounts outstanding to Pine 4U and Fir Real
- December 1: purchase of 30 trees from Pine 4U for $70 per tree
- December 12: sale of 80 trees to E Corp.
- December 15: purchase of 45 trees from Fir Real for $110 per tree
- December 17: sale of 50 trees to F Corp.
- December 18: purchase of 30 trees from Pine 4U for $130 per tree
- December 21: sale of all remaining trees to G Corp.
- December 24: payment of amounts outstanding to Pine 4U and Fir Real
- Use a table to keep track of the cost of trees in inventory and the costs that flow from inventory into COGS. Then create journal entries for each transaction and determine Financial Statement balances related to these inventory transactions.
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FIRST IN FIRST OUT (FIFO): CALCULATIONS |
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Date |
Description |
Increase to COGS |
Inventory balance |
|
Nov 1 |
Opening bal |
|
0 |
|
Nov 1 |
Purchase of 100@$50/unit |
|
100 units @ $50/unit: $5,000 |
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Nov 10 |
Purchase of 60@$65/unit |
|
100 units @ $50/unit= $5,000 60 units @ $65/unit= $3,900 Total inventory cost: $8,900 |
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Nov 16 |
Sale of 40 units |
40 units @$50/unit = $2,000 |
60 units @ $50/unit = $3,000 60 units @ $65/unit= $3,900 Total inventory cost: $6,900 |
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Nov 20 |
Purchase of 20@$55/unit |
|
60 units @ $50/unit= $3,000 60 units @ $65/unit= $3,900 20 units @ $55/unit= $1,100 Total inventory cost: $8,000 |
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Nov 25 |
Sale of 70 units |
60 units @ $50/unit= $3,000 10 units @ $65/unit= $ 650 Cost of 70 units sold: $3,650 |
50 units @ $65/unit= $3,250 20 units @ $55/unit= $1,100 Total inventory cost: $4,350 |
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Dec 1 |
Purchase of 30@$70/unit |
|
50 units @ $65/unit= $3,250 20 units @ $55/unit= $1,100 30 units @ $70/unit= $2,100 Total inventory cost: $6,450 |
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Dec 12 |
Sale of 80 units |
50 units @ $65/unit= $3,250 20 units @ $55/unit= $1,100 10 units @ $70/unit= $ 700 Cost of 80 units sold: $5,050 |
20 units @$70/unit = $1,400 |
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Dec 15 |
Purchase of 45@$110/unit |
|
20 units @ $70/unit = $1,400 45 units @ $110/unit= $4,950 Total inventory cost: $6,350 |
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Dec 17 |
Sale of 50 units |
20 units @ $70/unit = $1,400 30 units @ $110/unit= $3,300 Cost of 50 units sold: $4,700 |
15 units @ $110/unit = $1,650 |
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Dec 18 |
Purchase of 30@$130/unit |
|
15 units @ $110/unit= $1,650 30 units @ $130/unit = $3,900 Total inventory cost: $5,550 |
|
Dec 21 |
Sale of all remaining units |
15 units @ $110/unit= $1,650 30 units @ $130/unit = $3,900 Cost of 45 units sold: $5,550 |
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|
Total |
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$2,000 + $3,650 + $5,050 + $4,700 + $5,550 = $20,950 increase to COGS |
$0 ending inventory balance |
Journal Entries
November 1
| DR | Inventory | 5000 | ||
| CR | Accounts Payable | 5000 |
November 10
| DR | Inventory | 3900 | ||
| CR | Accounts Payable | 3900 |
November 16
| DR | Cash | 6000 | ||
| CR | Sales Revenue | 6000 |
| DR | Cost of Goods Sold | 2000 | |||
| CR | Inventory | 2000 |
November 20
| DR | Inventory | 1100 | ||
| CR | Accounts Payable | 1100 |
November 25
| DR | Cash | 10500 | ||
| CR | Sales Revenue | 10500 |
| DR | Cost of Goods Sold | 3650 | |||
| CR | Inventory | 3650 |
November 30
| DR | Accounts Payable | 10000 | ||
| CR | Cash | 10000 |
December 1
| DR | Inventory | 2100 | ||
| CR | Accounts Payable | 2100 |
December 12
| DR | Cash | 12000 | ||
| CR | Sales Revenue | 12000 |
| DR | Cost of Goods Sold | 5050 | |||
| CR | Inventory | 5050 |
December 15
| DR | Inventory | 4950 | ||
| CR | Accounts Payable | 4950 |
December 17
| DR | Cash | 7500 | ||
| CR | Sales Revenue | 7500 |
| DR | Cost of Goods Sold | 4700 | |||
| CR | Inventory | 4700 |
December 18
| DR | Inventory | 3900 | ||
| CR | Accounts Payable | 3900 |
December 21
| DR | Cash | 6750 | ||
| CR | Sales Revenue | 6750 |
| DR | Cost of Goods Sold | 5550 | |||
| CR | Inventory | 5550 |
December 24
| DR | Accounts Payable | 10950 | ||
| CR | Cash | 10950 |
Looks like fun, right? Here’s your chance to practice. Take a look at SHL and give it your best try…
Excellent calculating! Keep this example close because we’ll revisit SHL shortly under a different costing method.
