Question

Cement Company, Inc. began the first quarter with 1,000 units of inventory costing $25 per unit. During the first quarter, 3,000 units were purchased at a cost of $40 per unit, and sales of 3,400 units at $65 per units were made. During the second quarter, the company expects to replace the units of beginning inventory sold at a cost of $45 per unit. Cement Company uses the LIFO method to account for inventory. What is the correct journal entry to record cost of goods sold at the end of the first quarter

Answer 1

Calculation of Cost of Goods sold under LIFO:

For 3,000 units (3000*40) $120,000

For 400 units (400*25) $10,000

Add: Excess of replacement cost over historical $8,000

cost of LIFO liquidation (400*(45-25))

Cost of Goods sold under LIFO $138,000

Journal entry

Date Account Titles and Explanation Debit Credit

Cost of Goods sold $138,000

Inventory (120000+10000) $130,000

Excess of replacement cost over $8,000

historical cost of LIFO liquidation