3. Perpetual inventory system: journal entries . At the beginning of 20X3, Beehl

Question

3. Perpetual inventory system: journal entries. At the beginning of 20X3, Beehler Company implemented a computerized perpetual inventory system. The first transactions that occurred during 20X3 follow:

1/2/20X3 Purchases on account: 500 units @ $6 = $3,000

1/15/20X3 Sales on account: 300 units @ $8.50 = $2,550

1/20/20X3 Purchases on Account: 200 units @ 5 = $1,000

1/25/20X3   Sales on Account: 300 units @ $8.50 = $2,550

The company president examined the computer-generated journal entries for these transactions and was confused by the absence of a Purchases account.

a. Duplicate the journal entries that would have appeared on the computer printout under FIFO & LIFO

b. Calculate the balance in the firm’s Inventory account under each method.

c. Briefly explain the absence of the Purchases account to the company president.

Explanation / Answer

Ans c. In perpetual inventory system , there is no purchase account. Instead of a purchase a/c , the purchase costs are debited to Inventory a/c and purchase cost reductions like returns or discounts are credited to inventory a/c directly. This is an advance method whereby inventory value is automatically adjjusted with each transaction.

Ans a Journal Entries - FIFO Date Account Dr $ Cr $ Jan 2.20x3 Accounts Payable           3,000 Merchandise Inventory            3,000 Jan15. 20x3 Sales           2,550 Accounts Receivable            2,550 Merchandise Inventory           1,800 Cost of Merchandies Sold            1,800 Jan 20.20x3 Accounts Payable           1,000 Merchandise Inventory            1,000 Jan 25.20x3 Sales           2,550 Accounts Receivable            2,550 Merchandise Inventory           1,700 Cost of Merchandies Sold            1,700 Journal Entries - LIFO Date Account Dr $ Cr $ Jan 2.20x3 Accounts Payable           3,000 Merchandise Inventory            3,000 Jan15. 20x3 Sales           2,550 Accounts Receivable            2,550 Merchandise Inventory           1,800 Cost of Merchandies Sold            1,800 Jan 20.20x3 Accounts Payable           1,000 Merchandise Inventory            1,000 Jan 25.20x3 Sales           2,550 Accounts Receivable            2,550 Merchandise Inventory           1,600 Cost of Merchandies Sold            1,600 FIFO Ans b Opening Purchase Cost of Merchandise Sold Ending Inventory Date Transaction Op Units Cost $/Unit Total Op Inv Cost Purchase Units Purcahase cost/unit Total Purchase cost Total Inventory units Total Inventory value Sales unit Cost/unit of sales Total cost Ending Inventory Unit unit cost Total Cost Jan 2. Purchase                   -   0                 -   500 6                  3,000 500                  3,000                500               6.00              3,000 Jan15. sale               500          3,000                         -   500                  3,000                300 6                  1,800                200               6.00              1,200 Jan 20. Purchase               200          1,200          200 5                  1,000 400                  2,200                         -                  400               5.50              2,200 Jan 25. sale               400          2,200                         -   400                  2,200                300 =200*6+100*5                  1,700                100               5.00                  500 Total                  4,000 3500 LIFO Opening Purchase Cost of Merchandise Sold Ending Inventory Date Transaction Op Units Cost $/Unit Total Op Inv Cost Purchase Units Purcahase cost/unit Total Purchase cost Total Inventory units Total Inventory value Sales unit Cost/unit of sales Total cost Ending Inventory Unit unit cost Total Cost Jan 2. Purchase                   -   0                 -   500 6                  3,000 500                  3,000                500               6.00              3,000 Jan15. sale               500          3,000                         -   500                  3,000                300 6                  1,800                200               6.00              1,200 Jan 20. Purchase               200          1,200          200 5                  1,000 400                  2,200                         -                  400               5.50              2,200 Jan 25. sale               400          2,200                         -   400                  2,200                300 =200*5+100*6                  1,600                100               6.00                  600 Total                  4,000 3400 FIFO LIFO Closing Value Inventory 500 600

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