Question

The following information pertains to the inventory of Parvin Company during Year 2:

Jan. 1	Beginning Inventory	650	units	@	$	40
Apr. 1	Purchased	2,500	units	@	$	45
Oct. 1	Purchased	850	units	@	$	48

During Year 2, Parvin sold 3,500 units of inventory at $80 per unit and incurred $44,000 of operating expenses. Parvin currently uses the FIFO method but is considering a change to LIFO. All transactions are cash transactions. Assume a 30 percent income tax rate. Parvin started the period with cash of $80,000, inventory of $26,000, common stock of $55,000, and retained earnings of $51,000.

Required
a. Record the above transactions in general journal form and post to T-accounts using (1) FIFO and (2) LIFO. Use a separate set of journal entries and T-accounts for each method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)


  

Answer 1

1) Claculation of Profitability under T form using FIFO method

Raw Material a/c

Particulars amount particulars amount

To opening stock @40 650 26000 By Cost of goods sold 3500 155300

To Purchage a/c @ 45 2500 112500 650*40=26000

To Purchage a/c @ 48 850 40800 2500*45=112500

350*48=16800

By Closing stock 500 24000

Profit & Loss a/c

To Cost of goods sold a/c 155300 By sales a/c 280000

To Operating Expenses a/c 44000

To Net profit 80700

Cash a/c

To Balance b/d 80000 By Raw Meterial a/c 153300

To Sales a/c 280000 By Operating Expenses a/c 44000

By Balance c/d 162700

Balance Sheet

Share capital 55000 Cash 162700

Retained earnings 131700 Stock of raw material 24000

(51000+80700)

Total 186700 186700

1) Claculation of Profitability under T form using LIFO method

Raw Material a/c

Particulars amount particulars amount

To opening stock @40 650 26000 By Cost of goods sold 3500 159300

To Purchage a/c @ 45 2500 112500 150*40=6000

To Purchage a/c @ 48 850 40800 2500*45=112500

850*48=40800

By Closing stock 500 20000

Profit & Loss a/c

To Cost of goods sold a/c 159300 By sales a/c 280000

To Operating Expenses a/c 44000

To Net profit 76700

Cash a/c

To Balance b/d 80000 By Raw Meterial a/c 153300

To Sales a/c 280000 By Operating Expenses a/c 44000

By Balance c/d 162700

Balance Sheet

Share capital 55000 Cash 162700

Retained earnings 127700 Stock of raw material 20000

(51000+76700)

Total 182700 182700