Question

Cycles started with 5 bicycles that cost $8 each. On August 16, California bought 30 bicycles at $55 each. On August 30, California sold 20 bicycles for $105 each.

Requirements
1. Prepare ​Cycle's perpetual inventory record assuming the company uses the LIFO inventory costing method.
2. Journalize the purchase of merchandise inventory on account and the sale of merchandise inventory on account.

Answer 1

California Cycles

1. Perpetual Inventory Records:

Date Description Units Unit Cost Total

Aug. 1 Beginning Inventory 5 $8 $40

Aug. 16 Purchases 30 $55 1,650

Aug. 30 Sales 20 $105 2,100

Aug. 30 Cost of goods sold 20 $55 1,100

Aug. 30 Ending Inventory 15 $590

2. Journal Entries:

Aug. 16:

Debit Inventory $1,650

Credit Accounts Payable $1,650

To record the purchase of goods on account.

Aug. 30:

Debit Accounts Receivable $2,100

Credit Sales Revenue $2,100

To record the sale of goods on account.

Step-by-step explanation:

The LIFO inventory costing method determines the cost of goods sold by using the latest units in inventory. This is because the LIFO method assumes that the newest units of goods are sold first. This means that the ending inventory will include the costs of goods purchased earlier than the sales date.