IBM has a new type of computer system and it uses the LIFO assumption to track its inventory for this system. During October the following transactions happened with regard to this computer system (there were no computer systems on hand at the beginning of October):

10/ 5/2017 Purchased 10 computer systems @ $600 each FOB shipping point on credit

10/6/2017 Paid $500 in shipping to get the computer systems to IBMs warehouse

10/12/2017 Purchased 5 computer systems @ $625 each FOB destination on credit (arrived 10/14)

10/15/2017 Sold 8 computer systems at a price of $1,200 each on credit

10/20/2017 Purchased 10 computer systems @ $600 each FOB destination on credit with terms 5/10 Net 30 (arrived 10/23)

10/26/2017 Paid for the purchase of computer systems on the 20th

10/28/2017 Sold 7 computer systems at a price of $1,200 each on credit

10/31/2017 Counted the computer systems and found only 9 in the warehouse.

1. Give the journal entries for the above transactions (use either T accounts or journal entry format).

2. Calculate the gross profit for this computer system for October.

3. If IBM would have used the FIFO assumption for computer system, would gross profit have been higher, lower, or the same?

4. Assume that no more of these computer systems were purchased or sold during November and December. At the end of December, IBM determines that these systems are obsolete and thus they should apply the lower of cost or market. In applying this principle, they estimate that each system could be sold for $450 less $25 shipping to the customer. What entry is needed to record this situation (no systems have been sold as of the end of December)?

5. The entry recorded in 4 makes the gross margin go up go down or stay the same.