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
Jan. 4 Sale 80 units at $8 each
Jan. 11 Purchase 150 units at $6 each
Jan. 13 Sale 120 units at $8.75 each
Jan. 20 Purchase 160 units at $7 each
Jan. 27 Sale 100 units at $9 each

Fong Sai-Yuk uses the FIFO cost flow assumption. All purchases and sales are on account.
Required:
a. Assume Fong Sai-Yuk 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 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.

Fong Sai-Yuk Company

a. Journal Entries:

Debit Purchases $2,020

Credit Accounts payable $2,020

To record purchases of goods on account for the month.

Debit Accounts receivable $2,590

Credit Sales revenue $2,590

To record the sale of goods on account for the month.

Debit Sales revenue $2,590

Credit Income Summary $2,590

To close the account to the income summary.

Debit Income Summary $2,790

Credit Purchases $2,020

Credit Ending Inventory $770

To close the accounts to the income summary.

b. Computation of the Gross Profit using the periodic system:

Sales revenue                       $2,590

Cost of goods:

Opening inventory    $500

Purchases                 2,020

Less Ending inventory 770    1,750

Gross profit                            $840

c. Using the Perpetual system:

Journal Entries:

Jan. 4  Debit Accounts receivable $640

Credit Sales revenue $640

To record the sale of goods on account.

Jan. 4 Debit Cost of goods sold $400

Credit Inventory $400

To record the cost of goods sold.

Jan. 11   Debit Inventory  $900

Credit Accounts payable $900

To record the purchase of goods on account.

Jan. 13 Debit Accounts receivable $1,050

Credit Sales revenue $1,050

To record the sale of goods on account.

Jan. 13 Debit Cost of goods sold $700

Credit Inventory $700

To record the cost of goods sold.

Jan. 20 Debit Inventory $1,120

Credit Accounts payable $1,10

To record the purchase of goods on account.

Jan. 27 Debit Accounts receivable $900

Credit Sales revenue $900

To record the sale of goods on account.

Jan. 27 Debit Cost of goods sold $650

Credit Inventory $650

To record the cost of goods sold.

Jan. 31:

Debit Income Summary $1,750

Credit Cost of goods sold $1,750

To close the account to the income summary.

Debit Sales Revenue $2,590

Credit Income Summary $2,590

To close the account to the income summary.

d. Computation of the gross profit:

Sales revenue                       $2,590

Cost of goods                          1,750

Gross profit                              $840

Explanation:

a) Data and Calculations:

Date      Description Units  Unit Cost  Unit Price Total Cost Total Revenue

Jan. 1    Inventory        100         $5                             $500

Jan. 4   Sale                  80                            $8                            $640

Jan. 11   Purchase       150          $6                               900

Jan. 13  Sale               120                             $8.75                      1,050

Jan. 20 Purchase      160           $7                             1,120

Jan. 27 Sale               100                             $9                             900

Total goods available  410                                       $2,520

Total goods sold        300                                                       $2,590

Ending inventory         110

Using FIFO under periodic system:

Ending inventory = 110 * $7 = $770

Cost of goods sold = Cost of goods available minus cost of ending inventory

= $2,520 - $770

= $1,750

Using FIFO under perpetual system:

Cost of goods sold:

Jan. 4   Sale                       $400 (80 * $5)

Jan. 13  Sale                         700 (20 * $5 + 100 * $6)

Jan. 27 Sale                         650 (50 * $6 + 50 * $7)

Total cost of goods sold $1,750

Ending inventory = $2,520 - $1,750 = $770

the correct answer is b.)