Question

The following information pertains to the inventory of Parvin Company during Year 2: Jan. 1 Beginning Inventory 400 units @ $ 30 Apr. 1 Purchased 2,000 units @ $ 35 Oct. 1 Purchased 600 units @ $ 38 During Year 2, Parvin sold 2,700 units of inventory at $90 per unit and incurred $41,500 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 $75,000, inventory of $12,000, common stock of $50,000, and retained earnings of $37,000. 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

Answer:

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.

Explanation:

Units Cost Price Cost Price  

Begining Inventory 400 30  12.000    

purchase 1 2.000 35  70.000    

purchase 2 600 38      

Sales 1.700  90  153.000  

       

       

FIFO Units Cost Sale Price Cost Price Cost of goods

Begining Inventory 400 30 400  12.000  12000

purchase 1 2.000 35 1300  70.000  45500

purchase 2 600 38 0  22.800  0

Sales   1.700 90  153.000 57500

  0    

       

LIFO Units Cost Sale Price Cost Price Cost of goods

Begining Inventory 400 30 0  12.000  0

purchase 1 2.000 35 1.100  70.000  38500

purchase 2 600 38 600  22.800  22800

Sales   1.700 90  153.000 61300

  0    

Fifo Lifo      

Revenue 153.000 153.000      

Cost of goods 57500 61300      

Gross margin 95.500 91.700      

Expenses 41500 41500      

Ebit 54.000 50.200      

Tax rate 30% 30%      

Tax expense 16200 15060      

Net Income 37.800 35.140      

       

       

FiFO        

1        

Db Cash              153.000      

Cr Revenue               153.000      

       

2        

Db Cost of goods 57500      

Cr Inventory                  57500      

       

3        

Db Expenses          41500      

Cr Cash                          41500      

       

4        

Db tax expense 16200      

Cr cash                           16200      

       

LIFO        

1        

Db Cash             153.000      

Cr Revenue              153.000      

       

2        

Db Cost of goods 61300      

Cr Inventory                 61300      

       

3        

Db Expenses           41500      

Cr Cash                           41500      

       

4        

Db tax expense 15060      

Cr cash                          15060