Question
Lindale Bikes sells one model of bicycle and uses a perpetual inventory system with the FIFO cost formula. All purchases and sales are on account.
| Date (March 2026) | Event |
|---|
| March 1 | Opening inventory: 20 bicycles at $150 = $3,000. |
| March 5 | Bought 30 bicycles at $160 each. |
| March 10 | Sold 35 bicycles at $250 each. |
| March 18 | Bought 25 bicycles at $170 each. |
| March 25 | Sold 30 bicycles at $260 each. |
Required:
- Journal Entries — record the purchases and sales, including the cost-of-goods-sold entry for each sale. Use Inventory, Accounts Payable, Accounts Receivable, Sales Revenue and Cost of Goods Sold.
- Inventory Account — post to the Inventory account (running balance format), starting from the March 1 balance, and balance it off on March 31.
- FIFO Cost of Goods Sold — total cost of goods sold for March.
- Gross Profit — gross profit for March under FIFO.
- Moving-Average Inventory — closing inventory if Lindale had used the perpetual moving-average formula instead (to the cent).
Statements in this challenge
- Journal EntriesJournal Entry
- Inventory AccountLedger
- FIFO Cost of Goods SoldNumeric Answer
- Gross ProfitNumeric Answer
- Moving-Average InventoryNumeric Answer
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 2 — Inventories
Cost includes purchase price, import duties, transport and handling, less trade discounts and rebates. The cost formula — FIFO or weighted average — is then applied consistently to inventories of a similar nature and use.
Common mistakes
- Recomputing the weighted average only at the period end when a moving average is required under a perpetual system.
- Including selling costs or storage of finished goods in inventory cost.
- Switching cost formula between periods without treating it as a change of accounting policy.
IFRS vs US GAAP: US GAAP permits LIFO; IAS 2 prohibits it.
Further readingIAS 2: costing methods and NRV