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E8-9

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Intermediate Accounting (Kieso)
Found in: Page 425

Short Answer

Question: Fong Sai-Yuk Company sells one product. Presented below is information for January for Fong Sai-Yuk Company.

Jan. 1 Inventory 100 units at $5 each

4 Sale 80 units at $8 each

11 Purchase 150 units at $6 each

13 Sale 120 units at $8.75 each

20 Purchase 160 units at $7 each

27 Sale 100 units at $9 each

Fong Sai-Yuk uses the FIFO cost flow assumption. All purchases and sales are on account.

Instructions

(a) Assume Fong Sai-Yuk uses a periodic system. Prepare all necessary journal entries, including the end-of-month closing entry to record cost of goods sold. A physical count indicates that the ending inventory for January is 110 units.

(b) Compute gross profit using the periodic system.

(c) Assume Fong Sai-Yuk uses a perpetual system. Prepare all necessary journal entries.

(d) Compute gross profit using the perpetual system.

As the FIFO method is being used, gross profit under the periodic and perpetual systems are the same, i.e., $840.

See the step by step solution

Step by Step Solution

Journal entries under a periodic system

Date

Description

Debit

Credit

Jan 4

Accounts Receivables

$640

Sales Revenue

$640

(Being goods sold)

Jan 11

Purchase A/c

$900

Accounts Payable

$900

(Being goods purchased on credit)

Jan 13

Accounts Receivables

$1050

Sales Revenue

$1050

(Being goods sold on credit)

Jan 20

Purchase A/c

$1120

Accounts Payable

$1120

(Being goods purchased on credit)

Jan 27

Accounts Receivables

$900

Sales Revenue

$900

(Being goods sold on credit)

Jan 31

Inventory A/c (ending)

$770

Cost of goods sold

$1750

Purchase A/c

$2020

Inventory A/c (beginning)

$500

Gross profit under the periodic system

Journal entries under a perpetual system

Date

Description

Debit

Credit

Jan 4

Accounts Receivables

$640

Sales Revenue

$640

(Being goods sold)

Jan 4

Cost of goods sold

$400

Inventory

$400

(Being cost of goods sold recorded)

Jan 11

Purchase A/c

$900

Accounts Payable

$900

(Being goods purchased on credit)

Jan 13

Accounts Receivables

$1050

Sales Revenue

$1050

(Being goods sold on credit)

Jan 13

Cost of goods sold

$700

Inventory A/c

$700

(Being cost of goods sold recorded)

Jan 20

Purchase A/c

$1120

Accounts Payable

$1120

(Being goods purchased on credit)

Jan 27

Accounts Receivables

$900

Sales Revenue

$900

(Being goods sold on credit)

Jan 27

Cost of goods sold

$650

Inventory A/c

$650

(Being cost of goods sold recorded)

Gross Profit under the perpetual system

Gross Profit is $840

Most popular questions for Business-studies Textbooks

Question: Craig Company asks you to review its December 31, 2017, inventory values and prepare the necessary adjustments to the books. The following information is given to you.

1. Craig uses the periodic method of recording inventory. A physical count reveals $234,890 of inventory on hand at December 31, 2017.

2. Not included in the physical count of inventory is $13,420 of merchandise purchased on December 15 from Browser. This merchandise was shipped f.o.b. shipping point on December 29 and arrived in January. The invoice arrived and was recorded on December 31.

3. Included in inventory is merchandise sold to Champy on December 30, f.o.b. destination. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale on account for $12,800 on December 31. The merchandise cost $7,350, and Champy received it on January 3.

4. Included in inventory was merchandise received from Dudley on December 31 with an invoice price of $15,630. The merchandise was shipped f.o.b. destination. The invoice, which has not yet arrived, has not been recorded.

5. Not included in inventory is $8,540 of merchandise purchased from Glowser Industries. This merchandise was received on December 31 after the inventory had been counted. The invoice was received and recorded on December 30.

6. Included in inventory was $10,438 of inventory held by Craig on consignment from Jackel Industries.

7. Included in inventory is merchandise sold to Kemp f.o.b. shipping point. This merchandise was shipped on December 31 after it was counted. The invoice was prepared and recorded as a sale for $18,900 on December 31. The cost of this merchandise was $10,520, and Kemp received the merchandise on January 5.

8. Excluded from inventory was a carton labeled “Please accept for credit.” This carton contains merchandise costing $1,500 which had been sold to a customer for $2,600. No entry had been made to the books to reflect the return, but none of the returned merchandise seemed damaged; Craig will honor the return.

Instructions

(a) Determine the proper inventory balance for Craig Company at December 31, 2017.

(b) Prepare any correcting entries to adjust inventory to its proper amount at December 31, 2017. Assume the books have not been closed.

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