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Question 9E

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Intermediate Accounting (Kieso)
Found in: Page 425

Short Answer

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 closingentry 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 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

Working:

As the FIFO method is being used, the cost of ending inventory would be as follows:

1.

2.

Gross profit under the periodic system

Journal entries under 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)

Working:

As the FIFO method is being used, the cost of goods sold would be as follows:

1.

2.

3.

4.

Gross Profit under the perpetual system

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