Question

Ivanhoe Company sells one product. Presented below is information for January for Ivanhoe Company.

Jan. 1		Inventory		125	units at $4 each
4		Sale		104	units at $8 each
11		Purchase		158	units at $6 each
13		Sale		130	units at $9 each
20		Purchase		149	units at $6 each
27		Sale		87	units at $11 each

Ivanhoe uses the FIFO cost flow assumption. All purchases and sales are on account.

1. Assume Ivanhoe 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 111 units.

2. Compute gross profit using the periodic system.

3.Assume Ivanhoe uses a perpetual system. Prepare all necessary journal entries.

4. Compute gross profit using the perpetual system.

Answer 1

1		Periodic system;
		Journal entries
	Date	Account's tittle	Debit $	Credit $
	4-Jan	Accounts Receivable	832
		Sales ( 104 units x $ 8 )		832
	11-Jan	Inventory ( 158 units x $ 6 )	948
		Accounts Payable		948
	13-Jan	Accounts Receivable	1,170
		Sales ( 130 units x $ 9 )		1,170
	20-Jan	Inventory ( 149 units x $ 6 )	894
		Accounts Payable		894
	27-Jan	Accounts Receivable	957
		Sales ( 87 units x $ 11 )		957
	31-Jan	Cost of Goods Sold	1,676
		Inventory		1,676
		( 125 units x $ 4 + 158 units x $ 6 + 38 units x 6 = $ 1,676 for 321 units under FIFO )
2		Sales revenue ($ 832 + $ 1,170 + $ 957 )	2,959
		Less: Cost of goods sold	(1,676)
		Gross income	1,283
3		Perpectual system;
		Journal entries
	Date	Account's tittle	Debit $	Credit $
	4-Jan	Accounts Receivable	832
		Sales ( 104 units x $ 8 )		832
	4-Jan	Cost of goods sold ( 104 units x $ 4 )	416
		Inventory		416
	11-Jan	Inventory ( 158 units x $ 6 )	948
		Accounts Payable		948
	13-Jan	Accounts Receivable	1,170
		Sales ( 130 units x $ 9 )		1,170
	13-Jan	Cost of goods sold ( 21 units x $ 4 + 109 units x $ 6 )	738
		Inventory		738
	20-Jan	Inventory ( 149 units x $ 6 )	894
		Accounts Payable		894
	27-Jan	Accounts Receivable	957
		Sales ( 87 units x $ 11 )		957
	27-Jan	Cost of goods sold (49 units x $ 6 + 38 units x $ 6 )	522
		Inventory		522
4		Sales Revenue	2,959
		Less: Cost of goods sold	(1,676)
		Gross income	1,283