A company that uses the perpetual inventory system sold goods to a customer on account on June 16 for $ 27. The company has the following inventory​ information:

Question

June 1 Beginning Inventory     10 units at $ 1 each
June 10 Purchase                    12 units at $ 2 each
June 11 Sale                             9 units
June 16 Sale                             10 units
The company uses the FIFO method of inventory costing. Which of the following journal entries correctly records the sale on June​ 16?

Answer 1

To record the sale of goods on account for $27 on June 16 using the FIFO (First-In, First-Out) method, we also need to determine the cost of goods sold (COGS) for the items sold.

Inventory Information Prior to the Sale on June 16

1. Beginning Inventory:

   • 10 units at $1 each = $10

2. Purchases:

   • 12 units at $2 each = $24

3. Sales Prior to June 16:

   • On June 11, the company sold 9 units:
     • 9 units from beginning inventory (10 units at $1 each) = 9 x $1 = $9
     • Remaining Inventory after June 11:
       • 1 unit at $1
       • 12 units at $2

Sale on June 16

• Units Sold: 10 units
• According to FIFO, the cost of goods sold will consist of the oldest stock first:

1. Cost for June 16 Sale:
   • First, the company will sell the remaining 1 unit from the beginning inventory at $1 each.
   • Then, it will sell 9 units from the purchase at $2 each.
   • COGS Calculation:
     • 1 unit at $1 = $1
     • 9 units at $2 = 9 x $2 = $18
     • Total COGS for the sale = $1 + $18 = $19

Journal Entry for June 16 Sale

Now we can create the journal entries for the sale.

1. Record the Sale on Account:

• Debit: Accounts Receivable $27
• Credit: Sales Revenue $27

2. Record Cost of Goods Sold:

• Debit: Cost of Goods Sold $19
• Credit: Inventory $19

Final Journal Entries:

June 16
Debit: Accounts Receivable               $27
   Credit: Sales Revenue                         $27

Debit: Cost of Goods Sold                 $19
   Credit: Inventory                                 $19

These entries will reflect the sale of goods on account for $27 and the associated cost of goods sold of $19 correctly.