Reference no: EM133039435
Question - Johnson Corporation began the year with inventory of 15,000 units of its only product. The units cost $7 each. The company uses a perpetual inventory system and the FIFO cost method. The following transactions occurred during the year:
-Purchased 75,000 additional units at a cost of $10 per unit. Terms of the purchases were 2/10, n/30, and 100% of the purchases were paid for within the 10-day discount period. The company uses the gross method to record purchase discounts. The merchandise was purchased f.o.b. shipping point and freight charges of $0.60 per unit were paid by Johnson.
-1,500 units purchased during the year were returned to suppliers for credit. Johnson was also given credit for the freight charges of $0.60 per unit it had paid on the original purchase. The units were defective and were returned two days after they were received.
-Sales for the year totaled 70,000 units at $19 per unit.
-On December 28, Johnson purchased 5,500 additional units at $11 each. The goods were shipped f.o.b. destination and arrived at Johnson's warehouse on January 4 of the following year.
-18,500 units were on hand at the end of the year.Req:
Required -
1 - Determine ending inventory and cost of goods sold at the end of the year.
2 - Assuming that operating expenses other than those indicated in the above transactions amounted to $160,000, determine income before income taxes for the year.
3 - For financial reporting purposes, the company uses LIFO (amounts based on a periodic inventory system). Record the year-end adjusting entry for the LIFO reserve, assuming the balance in the LIFO reserve at the beginning of the year is $16,000. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
4 - Determine the amount the company would report as income before taxes for the year under LIFO. Operating expenses other than those indicated in the above transactions amounted to $160,000.
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