Question

Novak Company sells one product. Presented below is information for January for Novak Company.

Novak Company sells one product. Presented below is information for January for Novak Company. Jan. 1 4 11 13 20 27 Inventory Sale Purchase Sale Purchase Sale 125 units at $4 each 104 units at $8 each 158 units at $6 each 130 units at $9 each 149 units at $6 each 87 units at $11 each Novak uses the FIFO cost flow assumption. All purchases and sales are on account. Assume Novak uses a periodic system. Prepare all necessary journal entries, including the end-of-month closing entry to record cost of goods sold. A physical count indicates that the ending inventory for January is 111 units. (If no entry is required, select "No entry" for the account titles and enter o for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit

Answer 1

1) Units in ending inventory = Beg Inventory units+Units purchased-Units sold

= 125+(158+149) - (104+130+87)

= 125 units+307 units-321 units = 111 units

Under FIFO method, goods purchased first are sold first. Therefore ending inventory will be goods purchased last (i.e. on Jan 20 at $6 per unit)

Periodic Method:-

Under periodic method, cost of goods sold is calculated at the end of a specific time period (i.e. month in this case whereas under perpetual method, cost of goods sold is calculated on each sale separately.

Journal Entries (Amounts in $)

Date	Account Titles and Explanation	Debit	Credit
Jan. 4	Accounts receivable (104 units*$8)	832
	Sales revenue		832
	(To record the credit sales)
Jan. 11	Purchases (158 units*$6)	948
	Accounts Payable		948
	(To record the credit purchases)
Jan. 13	Accounts receivable (130 units*$9)	1,170
	Sales revenue		1,170
	(To record the credit sales)
Jan. 20	Purchases (149 units*$6)	894
	Accounts Payable		894
	(To record the credit purchases)
Jan 27	Accounts receivable (87 units*$11)	957
	Sales revenue		957
	(To record the credit sales)
Jan 31	Inventory (Ending Inventory) (111 units*$6)	666
	Cost of goods sold (bal fig) (1,842+500-666)	1,676
	Purchases (948+894)		1,842
	Inventory (beginning Inventory) (125*$4)		500
	(To record the cost of goods sold)

Gross Profit = Sales revenue - Cost of goods sold

= (832+1,170+957) - $1,676

= $2,959 - $1,676 = $1,283

Perpetual Method:-

Journal Entries (Amounts in $)

Date	Account Titles and Explanation	Debit	Credit
Jan. 4	Accounts receivable (104 units*$8)	832
	Sales revenue		832
	(To record the sales)
	Cost of goods sold (104 units*$4)	416
	Inventory		416
	(To record the cost of inventory)
Jan. 11	Inventory (158 units*$6)	948
	Accounts Payable		948
	(To record the credit purchases)
Jan. 13	Accounts receivable (130 units*$9)	1,170
	Sales revenue		1,170
	(To record the credit sales)
	Cost of goods sold [(21 units*$4)+(109 units*$6)]	738
	Inventory		738
	(To record the cost of inventory)
Jan. 20	Inventory (149 units*$6)	894
	Accounts Payable		894
	(To record the credit purchases)
Jan 27	Accounts receivable (87 units*$11)	957
	Sales revenue		957
	(To record the credit sales)
	Cost of goods sold (87 units*$6)	522
	Inventory		522
	(To record the cost of inventory)

Gross Profit = Sales revenue - Cost of goods sold

= (832+1,170+957) - (416+738+522)

= $2,959 - $1,676 = $1,283