Question

"Luke buys and sells stereo equipment. At the beginning of the year 2017, Luke had 8 stereos in inventory at a cost of $900 a piece. Journalize the following events under (a) perpetual method and (b) periodic method, respectively.

(1) On Jan. 31, 2017, Luke purchases 100 stereos at $900 cash per stereo.
(2) On Feb. 28, 2017, Luke sells 95 stereos for $1,200 cash per stereo.
(3) On Mar. 31, 2017 (the fiscal quarter end), Luke counts inventory and finds he has 13 stereos left."

Answer 1

The perpetual method and the periodic method are two different inventory accounting methods. In the perpetual method, inventory is constantly updated, while in the periodic method, inventory is only counted periodically. Journal entries for the given events are provided for both methods.

Step-by-step explanation:

The perpetual method and the periodic method are two different inventory accounting methods. Let's journalize the events using both methods:

Perpetual Method:

1. On Jan. 31, 2017, Luke purchased 100 stereos at $900 cash per stereo. The journal entry would be:
2. Debit: Inventory ($90,000)
3. Credit: Cash ($90,000)
4. On Feb. 28, 2017, Luke sold 95 stereos for $1,200 cash per stereo. The journal entry would be:
5. Debit: Cash ($114,000)
6. Credit: Inventory ($85,500)
7. Credit: Sales Revenue ($114,000)
8. On Mar. 31, 2017 (the fiscal quarter end), Luke counted inventory and found he had 13 stereos left. There is no journal entry for this event in the perpetual method.

Periodic Method:

1. On Jan. 31, 2017, Luke purchased 100 stereos at $900 cash per stereo. The journal entry would be:
2. Debit: Purchases ($90,000)
3. Credit: Accounts Payable ($90,000)
4. On Feb. 28, 2017, Luke sold 95 stereos for $1,200 cash per stereo. The journal entry would be:
5. Debit: Sales Revenue ($114,000)
6. Credit: Cost of Goods Sold ($85,500)
7. On Mar. 31, 2017 (the fiscal quarter end), Luke counted inventory and found he has 13 stereos left. The journal entry would be:
8. Debit: Inventory ($11,700)
9. Credit: Purchases ($11,700)