The following information pertains to the inventory of Parvin Company during Year 2. Beginning Inventory Purchased Purchased 300 units @ $37 2,900 units @ $42 500 units @ $45 January 1 April 1 October 1 During Year 2, Parvin sold 3,500 units of inventory at $80 per unit and incurred $46,000 of operating expenses. Parvin currently uses the FIFO method but is considering a change to LIFO. All transactions are cash transactions. Assume a 30 percent income tax rate. Parvin started the period with cash of $84,000, inventory of $11,100, common stock of $59,000, and retained earnings of $36,100. 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.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question
### Inventory Analysis for Parvin Company: Year 2

#### Background Information:
The following data pertains to the inventory transactions of Parvin Company for Year 2:

- **Beginning Inventory (January 1)**: 
  - Quantity: 300 units 
  - Unit Cost: $37

- **Purchases:**
  - **April 1**: 
    - Quantity: 2,900 units 
    - Unit Cost: $42
  - **October 1**:
    - Quantity: 500 units 
    - Unit Cost: $45

During Year 2, Parvin sold a total of 3,500 units of inventory at a unit price of $80 and incurred an operating expense of $46,000. The company currently utilizes the FIFO (First-In, First-Out) method but is considering switching to the LIFO (Last-In, First-Out) method. It should be noted that all transactions were carried out in cash. For the purposes of this analysis, assume a 30% income tax rate.

Financial Foundations:
- Initial Cash Balance: $84,000
- Initial Inventory Balance: $11,100
- Common Stock: $59,000
- Retained Earnings: $36,100

#### Required Actions:
1. **Journal Entries:**
   - Record the transactions in the general journal using:
     - FIFO method
     - LIFO method

2. **T-Accounts:**
   - Post the transactions to the respective T-accounts using both FIFO and LIFO methods.

#### Instructions:

**Step-by-Step Process for Recording and Posting Entries**

1. **Journal Entries**:
   - Create journal entries for each transaction using FIFO method.
   - Repeat the process using the LIFO method.

2. **T-Accounts**:
   - Post the recorded journal entries into the relevant T-accounts for both FIFO and LIFO.

**Graphical Representation and Tables**:

A tabulation of entries might resemble:

| **T-Accounts**               | **Cash**       | **Merchandise Inventory** |
|------------------------------|----------------|---------------------------|
| **Beginning Balance**        |                | 37 x 300                  |
|                              |                | 42 x 2,900                |
|                              |                | 45 x 500                  |
| **April 1 Purchase**         |                |                           |
| **October 1 Purchase**       |                |                           |
Transcribed Image Text:### Inventory Analysis for Parvin Company: Year 2 #### Background Information: The following data pertains to the inventory transactions of Parvin Company for Year 2: - **Beginning Inventory (January 1)**: - Quantity: 300 units - Unit Cost: $37 - **Purchases:** - **April 1**: - Quantity: 2,900 units - Unit Cost: $42 - **October 1**: - Quantity: 500 units - Unit Cost: $45 During Year 2, Parvin sold a total of 3,500 units of inventory at a unit price of $80 and incurred an operating expense of $46,000. The company currently utilizes the FIFO (First-In, First-Out) method but is considering switching to the LIFO (Last-In, First-Out) method. It should be noted that all transactions were carried out in cash. For the purposes of this analysis, assume a 30% income tax rate. Financial Foundations: - Initial Cash Balance: $84,000 - Initial Inventory Balance: $11,100 - Common Stock: $59,000 - Retained Earnings: $36,100 #### Required Actions: 1. **Journal Entries:** - Record the transactions in the general journal using: - FIFO method - LIFO method 2. **T-Accounts:** - Post the transactions to the respective T-accounts using both FIFO and LIFO methods. #### Instructions: **Step-by-Step Process for Recording and Posting Entries** 1. **Journal Entries**: - Create journal entries for each transaction using FIFO method. - Repeat the process using the LIFO method. 2. **T-Accounts**: - Post the recorded journal entries into the relevant T-accounts for both FIFO and LIFO. **Graphical Representation and Tables**: A tabulation of entries might resemble: | **T-Accounts** | **Cash** | **Merchandise Inventory** | |------------------------------|----------------|---------------------------| | **Beginning Balance** | | 37 x 300 | | | | 42 x 2,900 | | | | 45 x 500 | | **April 1 Purchase** | | | | **October 1 Purchase** | | |
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 5 steps

Blurred answer
Knowledge Booster
Financial Reporting in Hyperinflationary Economies
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education