Question 9E Fong Sai-Yuk Company sells one p... [FREE SOLUTION]

Chapter 8: Question 9E (page 425)

Fong Sai-Yuk Company sells one product. Presented below is information for January for Fong Sai-Yuk Company.
Jan. 1 Inventory 100 units at $5 each
4 Sale 80 units at $8 each
11 Purchase 150 units at $6 each
13 Sale 120 units at $8.75 each
20 Purchase 160 units at $7 each
27 Sale 100 units at $9 each
Fong Sai-Yuk uses the FIFO cost flow assumption. All purchases and sales are on account.
Instructions
(a) Assume Fong Sai-Yuk uses a periodic system. Prepare all necessary journal entries, including the end-of-month closingentry to record cost of goods sold. A physical count indicates that the ending inventory for January is 110 units.
(b) Compute gross profit using the periodic system.
(c) Assume Fong Sai-Yuk uses a perpetual system. Prepare all necessary journal entries.
(d) Compute gross profit using the perpetual system.

Short Answer

Expert verified

As the FIFO method is being used, gross profit under the periodic and perpetual systems are the same, i.e., $840.

Step by step solution

Journal entries under periodic system

Date	Description	Debit	Credit

Jan 4	Accounts Receivables	$640
	Sales Revenue		$640
	(Being goods sold)

Jan 11	Purchase A/c	$900
	Accounts Payable		$900
	(Being goods purchased on credit)

Jan 13	Accounts Receivables	$1050
	Sales Revenue		$1050
	(Being goods sold on credit)

Jan 20	Purchase A/c	$1120
	Accounts Payable		$1120
	(Being goods purchased on credit)

Jan 27	Accounts Receivables	$900
	Sales Revenue		$900
	(Being goods sold on credit)

Jan 31	Inventory A/c (ending)	$770
	Cost of goods sold	$1750
	Purchase A/c		$2020
	Inventory A/c (beginning)		$500

Working:

As the FIFO method is being used, the cost of ending inventory would be as follows:

1. $\begin{array}{rcl} Cost of ending Inventory & = & 110 units purchased on Jan 20 脳 Cost Price Per unit \\ = & 110 脳 $ 7 \\ = & $ 770 \end{array}$

2. $\begin{array}{rcl} Cost of goods sold & = & Total cost of goods available for sale - Ending inventory \\ = & $ 2, 520 - $ 770 \\ = & $ 1, 750 \end{array}$

Gross profit under the periodic system

$\begin{array}{rcl} Gross profit & = & Total sales - Cost of Goods sold \\ = & $ 2, 590 - $ 1, 750 \\ = & $ 840 \end{array}$

Journal entries under perpetual system

Date	Description	Debit	Credit

Jan 4	Accounts Receivables	$640
	Sales Revenue		$640
	(Being goods sold)

Jan 4	Cost of goods sold	$400
	Inventory		$400
	(Being cost of goods sold recorded)

Jan 11	Purchase A/c	$900
	Accounts Payable		$900
	(Being goods purchased on credit)

Jan 13	Accounts Receivables	$1050
	Sales Revenue		$1050
	(Being goods sold on credit)

Jan 13	Cost of goods sold	$700
	Inventory A/c		$700
	(Being cost of goods sold recorded)

Jan 20	Purchase A/c	$1120
	Accounts Payable		$1120
	(Being goods purchased on credit)

Jan 27	Accounts Receivables	$900
	Sales Revenue		$900
	(Being goods sold on credit)

Jan 27	Cost of goods sold	$650
	Inventory A/c		$650
	(Being cost of goods sold recorded)

Working:

As the FIFO method is being used, the cost of goods sold would be as follows:

$\begin{array}{rcl} Cost of goods sold on Jan 4 & = & 80 Units of Beginning inventory 脳 Cost per unit \\ = & 80 脳 55 \\ = & $ 400 \end{array}$

$\begin{array}{rcl} Cost of goods sold on Jan 13 & = & (20 Units of beginning inventory 脳 Cost per unit) + (100 Unitsfrom Jan 11 purchase 脳 Cost per unit \\ = & (20 脳 55) + (100 脳 6) \\ = & $ 700 \end{array}$

$\begin{array}{rcl} Cost of goods sold on Jan 27 & = & (50 Units ofJan 11 purchase 脳 Cost per unit) + (50 units of Jan 20 Purchase 脳 Cost per Unit) \\ = & (50 脳 $ 6) + (50 脳 $ 7) \\ = & $ 650 \end{array}$

$\begin{array}{rcl} Cost of Ending Inventory & = & Total value of goods available - Cost of goods sold \\ = & $ 2, 520 - $ 1, 750 \\ = & $ 770 \end{array}$

Gross Profit under the perpetual system

$\begin{array}{rcl} Gross Profit & = & Sales - Cost of goods sold \\ = & $ 2, 590 - $ 1, 750 \\ = & $ 840 \end{array}$

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Short Answer

Step by step solution

Journal entries under periodic system

Gross profit under the periodic system

Journal entries under perpetual system

Gross Profit under the perpetual system

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