Accounting for inventory using the perpetual inventory system—LIFO
This problem continues the Davis Consulting situation from Problem P5-45 in Chapter 5. Consider the January transactions for Davis Consulting that were presented in Chapter 5. (Cost data have been removed from the sale transactions.) Davis uses the perpetual inventory system.
Jan. 2 Completed a consulting engagement and received cash of $7,800.
2 Prepaid three months office rent, $1,650.
7 Purchased 80 units software inventory on account, $1,680, plus freight in, $80.
18 Sold 40 software units on account, $3,500.
19 Consulted with a client for a fee of $1,000 on account.
20 Paid employee salary, $2,055, which includes accrued salaries from December.
21 Paid on account, $1,760.
22 Purchased 240 units software inventory on account, $6,240.
24 Paid utilities, $250.
28 Sold 120 units software for cash, $4,680.
31 Recorded the following adjusting entries:
a. Accrued salaries expense, $686
b. Depreciation, $100 (Equipment, $30; Furniture, $70)
c. Expiration of prepaid rent, $550
d. Physical count of software inventory, 145 units.
Requirements
1. Prepare perpetual inventory records for January for Davis using the LIFO inventory costing method. (Note: you must calculate the cost of goods on the 18th, 28th, and the 31st.)
2. Open the following T-accounts in the ledger: Cash, $16,400; Accounts Receivable, $1,750; Software Inventory, $0; Office Supplies, $200; Prepaid Rent, $0; Equipment, $1800; Accumulated Depreciation---Equipment, $30; Furniture. $4200; Accumulated Depreciation---Furniture. $70; Accounts payable, $4700; Salaries Payable, $685; Unearned Revenue, $700; Davis, Capital, $18,165; Davis, Withdrawals, $0; Income Summary, $0; Service Revenue, $0; Sales Revenue, $0; Cost of Goods Sold, $0; Salaries Expense, $0; Rent Expense, $0; Utilities Expense, $0; Depreciation Expense---Equipment, $0; and Depreciation Expense---Furniture, $0.
3. Journalize and post the January transactions using the perpetual inventory record created in Requirement 1. Compute each account balance, and denote the balance as Bal.
4. Journalize and post the adjusting entries. Denote each adjusting amount as Adj. Compute each account balance, and denote the balance as Bal. After posting all adjusting entries, prove the equality of debits and credits in the ledger.