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| Click here to review an illustrated example of the FIFO calculation. The steps illustrated in the example are recapped below. |
| 1. Start with beginning inventory. |
| 2. Add a layer for each purchase made. |
| 3. Record cost of merchandise sold as sales occur and adjust layers. |
| 4. Compute the ending inventory for the period. |
Below is the data for the month of January, 2011.
| 1/1 Beg. Inv. | 130 Units @ $9 |
| 1/8 Purchase | 130 Units @ $11 |
| 1/14 Sale | 104 Units |
| 1/22 Purchase | 110 Units @ $9 |
| 1/25 Sale | 91 Units |
Compute the FIFO layers amounts for the cost of merchandise available for sale after each purchase and sale.
After 1/8 Purchase
| Layer 1 [removed] units $[removed] price per unit $[removed] value of the layer |
| Layer 2 [removed] units $[removed] price per unit $[removed] value of the layer |
After 1/14 Sale
| Layer 1 [removed] units $[removed] price per unit $[removed] value of the layer |
| Layer 2 [removed] units $[removed] price per unit $[removed] value of the layer |
After 1/22 Purchase
| Layer 1 [removed] units $[removed] price per unit $[removed] value of the layer |
| Layer 2 [removed] units $[removed] price per unit $[removed] value of the layer |
| Layer 3 [removed] units $[removed] price per unit $[removed] value of the layer |
After 1/25 Sale
| Layer 1 [removed] units $[removed] price per unit $[removed] value of the layer |
| Layer 2 [removed] units $[removed] price per unit $[removed] value of the layer |
| Layer 3 [removed] units $[removed] price per unit $[removed] value of the layer |
Based on your answers above, complete the worksheet below.
| FIFO Inventory Worksheet for Month Ending January 2011 | Purchases | Cost of Merchandise Sold | Inventory Balance | ||
| 1/1 Beg. Inv. | 130 Units @ $9 | 1,170 | |||
| 1/8 Purchase | 130 Units @ $11 | $ [removed] | $ [removed] | ||
| 1/14 Sale | 104 Units | $ [removed] | $ [removed] | ||
| 1/22 Purchase | 110 Units @ $9 | $ [removed] | $ [removed] | ||
| 1/25 Sale | 91 Units | $ [removed] | $ [removed] | ||
| Total | $ [removed] | $ [removed] | $ [removed] | ||
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Recording Changes in Inventory under FIFO Valuation Under the perpetual system, two journal entries are are required to record sales; one to record the sale and one to record the cost of merchandise sold. Click on the links below to review the journal entries for purchases and sales transactions.
After a purchase or sale occurs, the transaction must be recorded or journalized. In the following journal, record the purchases and sales for the month assuming that all inventory purchases were made with cash and all sales were made on account at a fixed unit price of $22 per unit. There are several facts to remember: (1) All inventory is purchased with cash, and cash only.
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