Question

Recording purchases and sales of inventory LO1, 2 Lowder Company purchased 275 units of inventory on account for $5775. Due to early payment, Lowder received a discount and paid only $5225. Lowder then sold 150 units for cash at $55 each, purchased an additional 65 units for cash at a cost of $1430, and then sold 100 more units for cash at $55 each. Lowder uses a perpetual inventory system. Required a Prepare all journal entries to record Lowder’s purchases and sales assuming the FIFO inventory costing method

plus the following additional requirements:
> Exercise 4 additional requirement b) Prepare the same journal entries as part a, this time using the periodic inventory system using the FIFO cost flow assumption. Compare the similarities and differences between journal entries recorded using the perpetual and periodic inventory systems. You may wish to write the journal entries side by side for ease of comparison.
> Exercise 4 additional requirement c) Instead of receiving a purchase discount for early repayment, Lowder received an allowance of $2 per unit because the inventory delivered had some minor defects. Record the journal entry for the allowance under BOTH the perpetual and the periodic inventory systems.

Answer 1

1.

	Perpetual Inventory			Periodic inventory
	Account titles	Debit	Credit	Account titles	Debit	Credit
1	Inventory	5775		Purchases	5775
	Accounts payable		5775	Accounts payable		5775
2	Accounts Payable	5775		Accounts payable	5775
	Cash		5225	Purchase discounts		550
	Inventory		550	Cash		5225
3	Cash	8250		Cash	8250
	Sales		8250	Sales		8250
	Cost of sales	2850
	Inventory		2850
	[150*(5225/275)]
4	Inventory	1430		Purchases	1430
	Cash		1430	Cash		1430
5	Cash	5500		Cash	5500
	Sales		5500	Sales		5500
	Cost of sales	1900		Inventory	475
	Inventory		1900	Cost of goods sold	4750
	[100*(5225/275)]			Purchase discounts	550
				Purchases		5775

2.

	Perpetual Inventory			Periodic inventory
2	Accounts Payable	5775		Accounts payable	5775
	Inventory		550	Purchase returns and allowances		550
	Cash		5225	Cash		5225