Question

Assume that you have a company. And the management estimates that 5% of sales will be uncollectible.

Give any amount of sales and prepare the journal entry using the percent of sales method.

Q3 A company that uses a perpetual inventory system made the following cash purchases and sales. There was no beginning inventory.

January 1:

Purchased 40 units at SAR10 per unit

February 5:

Purchased 40 units at SAR 12 per unit

March 16:

Sold 50 Units for SAR 15 per unit

A.Prepare general journal entries to record the March 16 sale using the

1. FIFO inventory valuation method.

2. LIFO inventory valuation method.

what is the gross margin for each method?

Answer 1

Journal Entries:

1) Journal Entries under FIFO Inventory Valuation Method
Date	Account Titles and Explanation	Debit	Credit
Jan. 1	Merchandise Inventory (40 units * SAR 10 per unit)	SAR 400
	Accounts Payable		SAR 400
	(To record the purchase of merchandise on account)
Fedb. 5	Merchandise Inventory (40 units * SAR 12 per unit)	SAR 480
	Accounts Payable		SAR 480
	(To record the purchase of merchandise on account)
Mar. 16	Accounts Receivable	SAR 750
	Sales Revenue (50 units * SAR 15 per unit)		SAR 750
	(To record the sales made on account)
	Cost of Goods Sold	SAR 520
	Merchandise Inventory ([40 units * SAR 10 per unit] + [10 units * SAR 12 per unit])		SAR 520
	(To record the cost of goods sold)
2) Journal Entries under LIFO Inventory Valuation Method
Date	Account Titles and Explanation	Debit	Credit
Jan. 1	Merchandise Inventory (40 units * SAR 10 per unit)	SAR 400
	Accounts Payable		SAR 400
	(To record the purchase of merchandise on account)
Fedb. 5	Merchandise Inventory (40 units * SAR 12 per unit)	SAR 480
	Accounts Payable		SAR 480
	(To record the purchase of merchandise on account)
Mar. 16	Accounts Receivable	SAR 750
	Sales Revenue (50 units * SAR 15 per unit)		SAR 750
	(To record the sales made on account)
	Cost of Goods Sold	SAR 580
	Merchandise Inventory ([40 units * SAR 12 per unit] + [10 units * SAR 10 per unit])		SAR 580
	(To record the cost of goods sold)

	FIFO	LIFO
Sales Revenue	SAR 750	SAR 750
Less: Cost of Goods Sold	SAR 520	SAR 580
Gross Margin	SAR 230	SAR 170