Tehran Ltd.uses FIFO to cost its inventory.The following information is available for Tehran's inventory of product # 101:
Beginning inventory: 120 units @ $3.14 per unit
March 1: Purchase of 250 units @ $3.50 per unit
April 10: Sale of 100 units @ $5.10 per unit
Assuming Tehran uses the perpetual inventory system, the second entry to account for the April 10 sale is
A)debit Cost of Goods Sold and credit Inventory, $350.
B)debit Cost of Goods Sold and credit Purchases, $350.
C)debit Cost of Goods Sold and credit Inventory, $314.
D)debit Cost of Goods Sold and credit Purchases, $314.

Question

Quizplus · Accepted Answer

Since Tehran uses the FIFO method, we have to assume that the 120 units from the beginning inventory were first to be sold, followed by 100 units from the March 1 purchase, leaving 250-100=150 units remaining in inventory. Therefore, the cost of goods sold for the 100 units sold on April 10 would be 120*$3.14 + 100*$3.50 = $764. The second entry to account for the April 10 sale would be to debit Cost of Goods Sold for $510 (100 units sold * $5.10 per unit) and credit Inventory for $314 (the cost of the 100 units sold, calculated above). Therefore, the correct answer is C.