At the beginning of November, Donkey Inc.’s inventory consists of 50 units with a cost per unit of $100. The following transactions occur during the month of November.
November 2 Purchase 70 units of inventory on account from Kong Inc. for $110 per unit, terms 2/10, n/30.
November 3 Pay freight charges related to the November 2 purchase, $250.
November 9 Return 20 defective units from the November 2 purchase and receive credit.
November 11 Pay Toad Inc. in full.
November 16 Sell 100 units of inventory to customers on account, $14,000. The cost of units sold from the November 2 purchase includes $110 unit cost plus $5 per unit for freight less $2.20 per unit for the purchase discount, or $112.80 per unit.
November 20 Receive full payment from customers related to the sale on November 16.
November 21 Purchase 70 units of inventory from Toad Inc. for $120 per unit, terms 1/10, n/30.
November 24 Sell 60 units of inventory to customers for cash, $9,000.
1. Assuming that Donkey Inc. uses a FIFO perpetual inventory system to maintain its internal inventory records, record the transactions.
2. Assuming for preparing financial statements that Yoshi Inc. reports inventory using LIFO, record the LIFO adjustment.
3. Suppose by the end of November that the remaining inventory is estimated to have a market value per unit of $90, record any necessary adjustment for the lower-of-cost-or-market method after the LIFO adjustment.
4. Prepare the top section of the multiple-step income statement through gross profit for the month of November after the lower-of-cost-or-market adjustment.