Question

Nash Company sells one product. Presented below is information for January for Nash Company.

Jan. 1 Inventory 102 units at $5 each
4 Sale 81 units at $8 each
11 Purchase 158 units at $6 each
13 Sale 126 units at $9 each
20 Purchase 152 units at $6 each
27 Sale 98 units at $10 each

Nash uses the FIFO cost flow assumption. All purchases and sales are on account.

Assume Nash uses a periodic system. Prepare all necessary journal entries, including the end-of-month closing entry to record cost of goods sold. A physical count indicates that the ending inventory for January is 107 units.

Compute gross profit using the periodic system.

Answer 1

To determine Nash Company's gross profit under FIFO and periodic inventory, the total sales of $2,762 and COGS of $1,863 are calculated, leading to a gross profit of $899.

Step-by-step explanation:

To determine the gross profit for Nash Company using the FIFO (First-In, First-Out) cost flow assumption under a periodic system, we need to calculate the cost of goods sold (COGS) and then subtract it from total sales revenue. Here are the steps:

1. Calculate total revenues from sales.
2. Determine the cost of goods sold based on FIFO inventory cost.
3. Journalize the sales, purchases, and COGS.
4. Compute the gross profit.

Sales Revenue:
Jan. 4: 81 units at $8 = $648
Jan. 13: 126 units at $9 = $1,134
Jan. 27: 98 units at $10 = $980
Total Sales Revenue = $648 + $1,134 + $980 = $2,762

COGS Calculation:
Jan. 4 Sale: 81 units from beginning inventory = 81 units at $5 = $405
Jan. 13 Sale: 102 remaining from beginning inventory at $5 = $510 and 24 units from Jan. 11 purchase at $6 = $144
Jan. 27 Sale: 134 units from Jan. 11 purchase at $6 = $804
Total COGS = $405 + $510 + $144 + $804 = $1,863

Gross Profit:
Total Sales Revenue - COGS = $2,762 - $1,863 = $899

Journal Entries would include recording each purchase and sale from the information provided during the month and end with recording the COGS and adjusting the inventory. The physical count of 107 units on hand at the end of January would be used to adjust the inventory balance.

In summary, Nash Company's gross profit for January, under FIFO and using a periodic inventory system, is $899.