Question

** THE 6 JOURNAL ENTRIES**

1. Record entry merchandise inventory purchased for cash.

2. Record entry merchandise inventory purchased for cash.

3. Record sale of inventory for cash.

4. Record entry for cost of goods sold.

5. Record entry for operating expenses paid.

6. Record entry for income tax expenses paid.

Required information [The following information applies to the questions displayed below.) The following information pertains to the inventory of Parvin Company during Year 2 Jan. 1 Apr. 1 Oct. 1 Beginning Inventory Purchased Purchased 800 units Ⓡ$ 35 2.800 units $ 40 1.000 units $ 43 During Year 2, Parvin sold 4.200 units of inventory at $95 per unit and incurred $45,500 of operating expenses. Parvin currently uses the FIFO method but is considering a change to LIFO. All transactions are cash transactions. Assume a 40 percent income tax rate. Parvin started the period with cash of $83,000, inventory of $28,000, common stock of $58,000. and retained earnings of $53,000 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.) FIFO

Answer 1

Cash Date Cash Date Yr1 yr1 Description Opening balance Closing Balance Amount (in ) Date 83000 72000 Description Apr-01 Merchandise Inventory Oct-01 Merchandise Inventory Amount (in $) 112,000 43,000 Yr1 yr 1 Description Opening balance Closing Balance Amount (in ) Date Description 83000 Apr-01 Merchandise Inventory 72000 Oct-01 Merchandise Inventory Amount in $) 1,12,000 43,000 155000 1,55,000 155000 1,55,000 Yr 2 Sales Yr 2 Sales 3,99,000 y 2 Yr 2 Opening balance Operating Expenses Provision for Income tax Closing Balance 72,000 45.500 75,080 2,06,420 3,99,000 V 2 YT 2 3,99,000 yr 2 yr 2 yr 2 yr 2 3,99,000 Opening balance Operating Expenses Provision for Income tax Closing Balance 72,000 45,500 73,800 2,07,700 3,99,000 3,99,000 Description Amount (in $) Description Amount (in $) Merchandise Inventory Date Description Yr1 Opening balance Apr-01 Cash Oct-01 Cash Amount (in $) Date 28,000 1,12,000 43,000 y 1 Merchandise Inventory Date Description Yr1 Opening balance Apr-01 Cash Oct-01 Cash Amount (in $) Date 28,000 1,12,000 43,000 y 1 Closing balance 1,83,000 Closing balance 1,83,000 1,83,000 1,83,000 1,83,000 1,83,000 yr2 Opening balance 1,86,300 y 2 yr 2 Opening balance Cost of goods sold Closing balance 1,65,800 20,500 1,86,300 1,83,000 y 2 yr 2 1,83,000 Cost of goods sold Closing balance 1,69,000 14,000 1,83,000 1,86,300 Cost of goods sold Date Description yr 2 Merchandise Inventory Description Amount (in ) Cost of goods sold Date Description yr 2 Merchandise Inven Description Amount (in %) Date 1,65,800 Amount in $) Amount (ins) Date 1 ,69,000 Common Stock Date Description Common Stock Date Description Amount (in %) Date v1 Description Opening balance Amount (in $) 58,000 Amount (in) Date yr1 Description Opening balance Amount in S) 58,000 Sales Date Sales Date Description Description Amount (in S) Date Yr 2 Description Cash Amount (in $) 3,99,000 Amount (in) Date yr 2 Description Cash Amount in $) 3,99,000 Retained earnings Date Description Retained ea mings Date Description Amount (in S) Date Description Opening balance Amount (in ) 53,000 Amount (ins) Date yr1 Description Opening balance Amount in $) 53,000 Operating Expenses Date Description yr 2 cash Description Amount (in $) Description Operating Expenses Date Description vr 2 cash Amount (in %) Date 45,500 Amount in $) Amount (ins) Date 45,500 Income tax expenses Date Description yr2 Provision for Income tax Description - Amount (in $) Amount (in S) Date 75,080 amount ins) Income tax expenses Date Description yr2 Provision for Incor Description Amount in $) Amount (in $) Date 73,800 Provision for Income tax Date Description yr 2 Cash Amount (in %) Date 75,080 y 2 Description Income tax expenses Amount (in $) 75,080 Provision for Income tax Date Description yr2 cash Amount (in ) Date 73,800 y 2 Description Income tax expenses Amount in 73,800

Debit/in $) Credit (in $) Debit(in $) Credit (in $) Answer to (a) General journal (under FIFO Method) Date Description Yr 1 Apr-01 Merchandise Inventory Cash (being inventory purchased) General journal (under LIFO Method) Date Description Yr 1 Apr-01 Merchandise Inventory Cash (being inventory purchased) 1,12,000 11200 1,12,000 1,12,000 1,12,000 43,000 43,000 Oct-01 Merchandise Inventory Cash (being inventory purchased) 40,000 Oct-01 Merchandise Inventory Cash (being inventory purchased) 43,000 Yr 2 3,99,000 Cash (4200*95) Sales (being ssles made) 3,99,000 L 3,99,000 Cash (4200*95) Sales (being ssles made) 3,99,000 45,500 45,500 Operating Expenses Cash (being expenses incurred) 45,500 Operating Expenses Cash (being expenses incurred) 45,500 1,65,800 1,69,000 1,65,800 1,69,000 Cost of goods sold Merchandise inventory (being cost of inventory sold under FIFO) (800*35+2800*40+600*43) Cost of goods sold Merchandise inventory (being cost of inventory sold under LIFO) (1000*43+2800*40+400*35) 75,080 73,800 75,080 73,800 Income tax expense Provision for Income Tax (being provision made) (399000-165 800-45500)*40% Income tax expense Provision for Income Tax (being provision made) (399000-169000-45500)*40% 75.080 73,800 Provision for Income Tax Cash (being income tax expenses paid) 75,080 Provision for Income Tax Cash (being income tax expenses paid) 73,800

Answer to (b) _ Parvin company Income Statement for the year ended December 31, year 2 FIFO Sales Revenue Less: Cost of goods sold Gross Profit Less: Operating Expenses Operating Income Less: tax @ 40% Net Income $ 3,99,000.00 $1,65,800.00 $2,33,200.00 $ 45,500.00 $ 1,87,700.00 $ 75,080.00 $1,12,620.00 LIFO Sales Revenue Less: Cost of goods sold Gross Profit Less: Operating Expenses Operating Income Less: tax @ 40% Net Income $ 3,99,000.00 $ 1,69,000.00 $ 2,30,000.00 $ 45,500.00 $ 1,84,500.00 $ 73,800.00 $ 1,10,700.00 Answer to (c) Income tax paid using FIFO Income tax paid using LIFO $ 75,080.00 $ 73,800.00 Answer to (d) Parvin company Cash Flow from Operating Activities FIFO LIFO Cash Flow from Operating Activities : Cash Inflow from Customers Cash outflow for Inventory Cash outflow for Operating expenses Cash outflow for Income tax expenses Net Cash flow from Operating activities 3990001 - 155000 -45500 -750801 1234201 399000 - 155000 -45500 -73800 124700