Question

Journalize the following transactions and adjusting entries, assuming the perpetual inventory system, no beginning inventory, LIFO cost flow method.
(Chart of Account : Cash, Inventory, Accounts Receivable, Accounts Payable, Sales Revenue, Sales Return, Cost of Good Sold)

-Dec. 3 Purchased 4,000 units of inventory on account at a cost of $2 per unit.
-Dec. 5 Sold 3,500 units of inventory on account for $3 per unit.
-Dec. 7 Granted the December 5 customer $600 credit for 200 units of inventory returned costing $400.
These units were returned to inventory
-Dec. 17 Purchased 2,200 units of inventory for cash at $2.5 per unit
-Dec. 22 Sold 500 units of inventory on account for $3.5 per unit

Answer 1

Last in, first out (LIFO) is a method used to account for inventory that records the most recently produced items as sold first. Under LIFO, the cost of the most recent products purchased (or produced) are the first to be expensed as cost of goods sold (COGS)—which means the lower cost of older products will be reported as inventory.

Journal entries to be recorded are:

Date	Account and explanations	Debit	Credit
Dec. 03	Inventory	$8,000
	Accounts Payable		$8,000
(To record purchase of goods)
Inventory = 4,000 units * 2 per unit = $8,000
Dec. 05	Accounts Receivable	$10,500
	Sales Revenue		$10,500
(To record sales of goods on account)
Sales Revenue = 3,500 units * 3 per unit = $10,500
Dec. 05	Cost of Goods sold	$7,000
	Inventory		$7,000
(To record cost of goods sold)
Cost of goods sold = 3,500 units * 2 per unit = $7,000
Dec. 07	Sales Return	$600
	Accounts Receivable		$600
(To record return of sales)
Dec. 07	Inventory	$400
	Cost of Goods sold		$400
(To record return of cost of goods sold)
Dec. 17	Inventory	$5,500
	Cash		$5,500
(To record sale of goods)
Inventory = 2,200 units * 2.5 per unit = $5,500
Dec. 22	Accounts Receivable	$1,750
	Sales Revenue		$1,750
(To record sales of goods on account)
Inventory = 500 units * 3.5 per unit = $1,750
Dec. 22	Cost of Goods sold	$1,250
	Inventory		$1,250
(To record cost of goods sold)
Cost of goods sold = 500 units * 2.5 per unit(cost per unit of last purchased) = $1,750