Question

Novak Corporation sells one product, with information for July as follows:

July	1		Inventory		100 units at $17.00 each
	4		Sale		80 units at $19.00 each
	11		Purchase		150 units at $16.00 each
	13		Sale		120 units at $18.50 each
	20		Purchase		160 units at $17.00 each
	27		Sale		100 units at $20.40 each

Novak uses the FIFO cost formula. All purchases and sales are on account. Ignore any estimated returns on purchases and sales.

A. Assume Novak uses a periodic system. Prepare all journal entries needed, including the end-of-month adjusting entry to record cost of goods sold. A physical count indicates that the ending inventory for July is 110 units. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Record journal entries in the order presented in the problem.)

B. Calculate gross profit using the periodic system.

C. Assume Novak uses a perpetual system. Prepare all July journal entries

D. Calculate gross profit using the perpetual system.

A list of possible accounts is as follows:

Accounts Payable Accounts Receivable Allowance to Reduce Inventory to NRV Biological Assets Buildings Cash Cost of Goods Sold Equipment Interest Expense Interest Income Interest Payable Interest Receivable Inventory Inventory Over and Short Land Liability for Onerous Contracts Loss on Inventory Due to Decline in NRV Loss on Purchase Contracts No Entry Purchase Discounts Purchase Discounts Lost Purchase Returns and Allowances Purchases Raw Materials Realized Gain or Loss Rebate Receivable Recovery of Loss on Inventory Due to Decline in NRV Refund Liability Retained Earnings Sales Returns and Allowances Sales Revenue Supplies Expense Unrealized Gain or Loss

Answer 1

A) Periodic Inventory System:
Date	Account Titles and Explanation	Debit	Credit
Jul. 4	Accounts Receivable	$1,520
	Sales Revenue (80 units * $19 each)		$1,520
	(To record the sales made on account)
Jul. 11	Purchases (150 units * $16 each)	$2,400
	Accounts Payable		$2,400
	(To record the purchase of merchandise on account)
Jul. 13	Accounts Receivable	$2,220
	Sales Revenue (120 units * $18.50 each)		$2,220
	(To record the sales made on account)
Jul. 20	Purchases (160 units * $17 each)	$2,720
	Accounts Payable		$2,720
	(To record the purchase of merchandise on account)
Jul. 27	Accounts Receivable	$2,040
	Sales Revenue (100 units * $20.40 each)		$2,040
	(To record the sales made on account)
Jul. 31	Cost of Goods Sold (see note 1)	$4,950
	Merchandise Inventory (see note 1)	$1,870
	Purchases ($2,400 + $2,720)		$5,120
	Merchandise Inventory (100 units * $17 each)		$1,700
	(To record the month end adjusting entry for cost of goods sold and ending inventory)

Working notes - 1:	Units (a)	Rate (b)	Amount (a*b)
Beginning inventory	80	$17	$1,360
Beginning inventory	20	$17	$340
Purchases - Jul. 11	100	$16	$1,600
Purchases - Jul. 11	50	$16	$800
Purchases - Jul. 20 (100 - 50)	50	$17	$850
Cost of Goods Sold	300		$4,950
Ending Inventory:
Purchases - Jul. 20 (160 - 50)	110	$17	$1,870

b)

Sales Revenue ($1,520 + $2,220 + $2,040)	$5,780
Less: Cost of Goods Sold	($4,950)
Gross Profit	$830

.

C) Perpetual Inventory System:
Date	Account Titles and Explanation	Debit	Credit
Jul. 4	Accounts Receivable	$1,520
	Sales Revenue (80 units * $19 each)		$1,520
	(To record the sales made on account)
	Cost of Goods Sold (80 units * $17 each)	$1,360
	Merchandise Inventory		$1,360
	(To record the cost of goods sold)
Jul. 11	Merchandise Inventoryb (150 units * $16 each)	$2,400
	Accounts Payable		$2,400
	(To record the purchase of merchandise on account)
Jul. 13	Accounts Receivable	$2,220
	Sales Revenue (120 units * $18.50 each)		$2,220
	(To record the sales made on account)
	Cost of Goods Sold [(20 units * $17 each) + (100 * $16 each)]	$1,940
	Merchandise Inventory		$1,940
	(To record the cost of goods sold)
Jul. 20	Merchandise Inventory (160 units * $17 each)	$2,720
	Accounts Payable		$2,720
	(To record the purchase of merchandise on account)
Jul. 27	Accounts Receivable	$2,040
	Sales Revenue (100 units * $20.40 each)		$2,040
	(To record the sales made on account)
	Cost of Goods Sold [(50 units * $16 each) + (50 * $17 each)]	$1,650
	Merchandise Inventory		$1,650
	(To record the cost of goods sold)

d)

Sales Revenue ($1,520 + $2,220 + $2,040)	$5,780
Less: Cost of Goods Sold ($1,360 + $1,940 + $1,650)	($4,950)
Gross Profit	$830