Chapter 8 In-Class Problems

Problem 1 (E8-1 and E8-2)

The following are some inventory transactions for the month of May 2018:

1. John’s purchased merchandise on account for $5,000. Freight charges of $300 were paid in cash.
2. John’s returned some of the merchandise purchased in (1). The cost of the merchandise was $600 and
John’s account was credited by the supplier.
3. Merchandise costing $2,800 was sold for $5,200 in cash.

Required:
Prepare the necessary journal entries to record these transactions using: 1) the perpetual inventory system and 2)
using the periodic inventory system

PERPETUAL
1 01 Inventory 5,000
Accounts payable 5,000

2 01 Inventory 300
Cash 300

3 02 Accounts payable 600

Inventory 600

4 03 Cash 5,200
Sales revenue 5,200

5 03 Cost of goods sold 2,800

Inventory 2,800

PERIODIC

1 01 Purchases 5,000
Accounts payable 5,000

2 01 Freight-in 300
Cash 300

3 02 Accounts payable 600

Purchase returns 600

4 03 Cash 5,200
Sales revenue 5,200

5 03 No journal entry required

Problem 2 (P8-5)
Ferris Company began 2018 with 6,000 units of its principal product. The cost of each unit is $8. Merchandise
transactions for the month of January 2018 are as follows:
 
  Purchases
Date of Purchase Units  Unit Cost*Total Cost Sales
Jan. 10 5,000  $ 9   $ 45,000  Date of Sale Units  
Jan. 18 6,000    10      60,000  Jan. 5 3,000 
105,00 Jan. 12 2,000 
Totals 11,000             Jan. 20 4,000 
0
Total 9,000 
* Includes purchase price and cost of freight.  
 
 
8,000 units were on hand at the end of the month.
 
Required:
Calculate January's ending inventory and cost of goods sold for the month using each of the following alternatives:
 
1. Average cost, periodic system.
2. Average cost, perpetual system.
3. FIFO, periodic system.
4. LIFO, periodic system.
5. LIFO, perpetual system.

Cost of goods available for sale for periodic system:

           
Beginning inventory (6,000 × $8.00)     $ 48,000 
Purchases:          
5,000 × $ 9.00 $45,000      
6,000 × $10.00  60,000   105,000 
Cost of goods available (17,000 units)     $153,000 

 1. Average cost, periodic system

      
153,00
Cost of goods available for sale (17,000 units)$  
0
Less: Ending inventory (below)   (72,000)
Cost of goods sold $ 81,000 

  
Cost of ending inventory:
Weighted-average unit cost = $153,000 = $9.00
  17,000 units  
  
8,000 units × $9.00 = $72,000
 
Alternatively, cost of goods sold could be determined by multiplying the units sold by the average cost:    9,000 units
× $9.00 = $81,000.
  
2. Average cost, perpetual system
  Date Purchased Sold Balance
  Beginning inventory  6,000 @ $8.00 = $ 48,000              6,000 @ $8.00   $48,000
  January 5            3,000 @ $8.00 = $ 24,000 3,000 @ $8.00   $24,000
                                         
  January 10   5,000 @ $9.00 = $ 45,000                          
                                         
        $69,000                        
Available = $ 8.625/unit
        8,000 units                        
                                         
  January 12            2,000 @ $8.625 = $ 17,250 6,000 @ $8.625   $51,750
                                         
  January 18   6,000 @ $10.00 = $ 60,000                          
                                         
        $111,750                        
Available = $9.3125/unit
        12,000 units                        
  January 20            4,000 @ $9.3125 = $ 37,250 8,000 @ $9.3125   $74,500
                                    Ending
                                    inventory
       Total cost of goods sold          $ 78,500             

3. FIFO, periodic system

      
153,00
Cost of goods available for sale (17,000 units)$  
0
Less: Ending inventory (determined below)   (78,000)
Cost of goods sold $ 75,000 

 
Cost of ending inventory:
Date of
 
Purchase Units Unit CostTotal Cost
Jan. 10 2,000  $ 9.00  $ 18,000 
Jan. 18 6,000    10.00     60,000 
Totals 8,000          78,000 

 
Alternatively, cost of goods sold can be determined by adding the cost of the 6,000 units in beginning inventory
($48,000) and the 3,000 units from the January 10 purchase ($27,000) = $75,000.

 
4. LIFO, periodic system
      
153,00
Cost of goods available for sale (17,000 units)$  
0
 Less: Ending inventory (determined below)   (66,000)
Cost of goods sold $ 87,000 

  
Cost of ending inventory:
Date of
 
Purchase Units Unit CostTotal Cost
Beg. Inv. 6,000  $ 8.00   $ 48,000 
Jan. 10 2,000    9.00      18,000 
Totals 8,000           66,000 

 
Alternatively, cost of goods sold can be determined by adding the cost of the 6,000 units from the January 18
purchase ($60,000) and the 3,000 units from the January 10 purchase ($27,000) = $87,000.

 
5. LIFO,  perpetual system
  Date Purchased Sold Balance
  Beginning inventory  6,000 @ $ 8.00 = $ 48,000              6,000 @ $ 8.00   $ 48,000
  January 5                3,000 @ $ 8.00 = $ 24,000 3,000 @ $ 8.00   $ 24,000
                                             
  January 10   5,000 @ $ 9.00 = $ 45,000              3,000 @ $ 8.00      
                                 5,000 @ $ 9.00   $ 69,000
                                             
  January 12                2,000 @ $ 9.00 = $ 18,000 3,000 @ $ 8.00      
                                 3,000 @ $ 9.00   $ 51,000
                                             
  January 18   6,000 @ $ 10.00 = $ 60,000              3,000 @ $ 8.00      
                                 3,000 @ $ 9.00      
                                 6,000 @ $ 10.00   $111,000
                                             
  January 20                4,000 @ $ 10.00 = $ 40,000 3,000 @ $ 8.00      
                                 3,000 @ $ 9.00      
                                 2,000 @ $ 10.00   $ 71,000
                                         Ending
                                         inventory
       Total cost of goods sold          $ 82,000