LIFO Perpetual Inventory The beginning inventory of merchandise at Keats Office Supplies and data on purchases and sales for a three-month period are…


3. Determine the ending inventory cost as of May 31, 2014. $

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1. When the perpetual inventory system is used, revenue is recorded each time a sale is made along with an entry to record the cost of the merchandise sold. LIFO means the last units purchased are assumed to be the first to be sold. Therefore after each sale, the remaining or ending inventory is made up of the first or earliest purchases. Think of your inventory in terms of “layers.” The first sale comes from the most recent purchase layer. When deciding which layer to use for costing of each sale ask yourself: “Is there enough inventory left in the most recent purchase to cover the sale?” If not, the other units sold should be taken from the second most recent purchase layer, which then contains the most recent costs. Continue this process for each transaction. If you have done this problem correctly, the remaining units making up ending inventory will be the March 3 beginning inventory and May 21 unit purchase price.

2. Total sales are obtained by taking the number of units sold times their sale prices for all sales and adding these amounts together. The total cost of merchandise sold can be obtained by adding the LIFO costs in the perpetual inventory record. Sales minus cost of merchandise sold equals gross profit.

3. The ending inventory is what is left after subtracting the cost of goods sold from the goods available for sale. Multiply the units remaining after the last sale by their corresponding earliest layer cost to determine the LIFO cost of the ending inventory.

Learning Objective 2, Learning Objective 3.