Tehran Ltd. uses FIFO to cost its inventory. The following information is available for Tehran's inventory of product # 101: Beginning inventory: $\quad 120$ units $@ \$ 3.14$ per unit
March 1: $\quad$ $\quad$ $\quad$ $\quad$ Purchase of 250 units @ $\$3.50$ per unit
April 10: $\quad$ $\quad$ $\quad$ $\quad$ 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

Tehran Ltd. uses FIFO to cost its inventory. The following information is available for Tehran's inventory of product # 101: Beginning inventory: $\quad 120$ units $@ \$ 3.14$ per unit
March 1: $\quad$ $\quad$ $\quad$ $\quad$ Purchase of 250 units @ $\$3.50$ per unit 
April 10: $\quad$ $\quad$ $\quad$ $\quad$ 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.

Quizplus · Accepted Answer

Since Tehran uses FIFO, the cost of the units sold on April 10 are the cost of the oldest units in inventory. The beginning inventory of 120 units were sold first, followed by 30 units from the March 1 purchase. Therefore, the cost of goods sold would be (120 x $3.14) + (30 x $3.50) = $514.80. The entry to record the sale would be to debit Cost of Goods Sold for $514.80 and credit Inventory for the same amount. Since the question is asking for the second entry, and the inventory balance after the sale would be (120 + 250 - 100) units = 270 units, we use the cost of the beginning inventory of 120 units at $3.14 per unit to calculate the credit to inventory of $314. Therefore, the correct answer is C.

Tehran Ltd 120\quad 120120 Units @$3.14@ \$ 3.14@$3.14 Per Unit March 1 \quad

Tehran Ltd $\quad 120$ Units $@ \$ 3.14$ Per Unit
March 1 $\quad$