Accounting records for Red Deer Tire Ltd. yield the following data for the year ended December 31, 2017 (amounts in thousands):

Inventory, December 31, 2016............................................................................. $ 550

Purchases of inventory (on account).................................................................... 1,200

Sales of inventory-80% on account; 20% for cash (cost $900)......................... 2,000

Inventory at FIFO cost, December 31, 2017.......................................................... 850

Requirements

1. Journalize Red Deer Tire's inventory transactions for the year under (a) the perpetual system and (b) the periodic system. Show all amounts in thousands. Use Exhibit 5-4 as a model, on page 237.

2. What differences do you notice in the journal entries between the perpetual system and the periodic system?

3. Report ending inventory, sales, cost of goods sold, and gross profit on the appropriate financial statement (amounts in thousands), assuming the perpetual inventory system is used?

EXHIBIT 5-4

Recording and Reporting Inventory-Perpetual System and Periodic System (Amounts Assumed)

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tual System Periodic Systemm PANEL A-Recording Transactions 600,000 PANEL A-Recording Transactions (all amounts are assumed) 3 Jan. 2 Purchases 2 600,000 ble 600,000 Accounts 600,000 Purchased 1,000 units on account. 3 Inventory Purchased 1,000 units on account. 4,000 3 Freight-in 4,000 ble 4,000 4,000 Record 9 Accounts In ht fee on Record freight fee on p 9 Accounts payable 25,000 25,000 Purchase returns and allowance credit. 25,000 25,000 Returned goods to supplier for credit. 12 11 Accounts 5,000 Accounts payable 5,000 In 5,000 Purchase allowance 5,000 Record purchase allowance. allowance. 16 Accounts 14,000 16 Accounts payable 14,000 14,000 Purchase discount 14,000 Inventory Record purchase discount Record purchase discount 18 16 Accounts payable 560,000 16 Accounts payable 560,000 560,000 560,000 Record Record payment. 31 Accounts receivable 21 31 Accounts receivable 900,000 900,000 Sales revenue Record sales on account. 900,000 Sales revenue 900,000 Record sales on account 24 31 Cost of goods sold 540,000 24 31 No In 540,000 26 Update inventory and COGS. 31No adjustments required. 27 31 Cost of goods sold 540,000 120,000 5,000 25,000 14,000 Inventory, *ending balance Purchase allowance Purchase returns and allow Purchase discount Purchases Freight-in Inventory, beginning Close out beginning inventory set up ending inventory and close all Purchase-related accounts including Freight-in. After the process is complete, Inventory has its correct balance of $120,000 and Cost of Goods Sold shows $540,000 Determined by physical count 32 32 600,000 4,000 100,000 35 35 36 36 PANEL B-Reporting in the Financial Statements (Perpetual) PANEL B-Reporting in the Financial Statements (Periodic) Income Statement (Partial) Ending Balance Sheet (Partial) Income Statement (Partial) Ending Balance Sheet (Partial) Sales revenue, Sales revenue, net... Cost of goods sold: net$900,000 Current assets: $900,000 Current Assets: Cost of goods sold.540,000 Cash Gross profit Xxx Temporary investments...Xxx Beginning inventory $100,000 Net Purchas560,000 Goods available for sale 660,000 Ending inventory $360,000 Temporary i Accounts receivable Inventory Prepaid expens Accounts receivable Inventory. 120,000 Prepaid expenses.XXX 120,000 (120,000) Cost ofgoods sold 540,000 $360,000