Question

Larkspur Company sells one product. Presented below is information for January for Larkspur Company. Jan. 1 Inventory 118 units at $5 each 4 Sale 93 units at $8 each 11 Purchase 165 units at $6 each 13 Sale 136 units at $9 each 20 Purchase 163 units at $7 each 27 Sale 104 units at $11 each Larkspur uses the FIFO cost flow assumption. All purchases and sales are on account.

1. Assume Larkspur 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 113 units.

1. a. Compute gross profit using the periodic system.

2. Assume Larkspur uses a perpetual system. Prepare all necessary journal entries.

2. a. Compute gross profit using the perpetual system.

Answer 1

Solution 1: Journal entries using the periodic system is as shown below:

Periodic Method
Date	Particulars	L.F	Amount ($)	Amount ($)
Jan-04	Accounts Receivable (93*8)		744
	sales			744
	(for goods sold on credit)
Jan-11	Purchases (165*6)		990
	Account Payable			990
	(for units purchased)
Jan-13	Accounts Receivable (136*9)		1,224
	sales			1,224
	(for goods sold on credit)
Jan-20	Purchases (163*7)		1141
	Account Payable			1,141
	(for units purchased)
Jan-27	Accounts Receivable (104*11)		1,144
	sales			1,144
	(for goods sold on credit)
Jan-31	Closing inventory (113*7)		791
	Cost of goods sold		1,930
	Opening Inventory (118*5)			590
	Purchases			2131

Ending inventory of 113 unit will be on the last purchase on Jan 20 as Larkspur is following FIFO method

1a. Gross profit will be:

	Amount ($)
Sales	3,112
Less: Cost of Goods Sold	1,930
Gross Profit	1,182

2. Journal entries using the perpetual system is as shown below:

Perpetual Method
Date	Particulars	L.F	Amount ($)	Amount ($)
Jan-04	Accounts Receivable (93*8)		744
	sales			744
	(for goods sold on credit)
Jan-04	Cost of goods sold (93*5)		465
	Merchandise Inventory			465
	(For cost of goods sold recorded)
Jan-11	Merchandise Inventory (165*6)		990
	Account Payable			990
	(for units purchased)
Jan-13	Accounts Receivable (136*9)		1,224
	sales			1,224
	(for goods sold on credit)
Jan-13	Cost of goods sold (25*5 + 111*6)		791
	Merchandise Inventory			791
	(For cost of goods sold recorded)
Jan-20	Merchandise Inventory (163*7)		1141
	Account Payable			1,141
	(for units purchased)
Jan-27	Accounts Receivable (104*11)		1,144
	sales			1,144
	(for goods sold on credit)
Jan-13	Cost of goods sold (54*6 +50*7)		674
	Merchandise Inventory			674
	(For cost of goods sold recorded)

2b. Gross profit will be:

	Amount ($)
Sales	3,112
Less: Cost of Goods Sold	1,930
Gross Profit	1,182