To illustrate the different inventory cost flow assumptions, consider the following example of Russell Company, which purchased inventory at three different times at three different prices.

	Units	Cost per Unit	Total Cost
May 1 Purchase	35	$ 12	$ 420
May 15 Purchase	35	19	665
May 20 Purchase	35	22	770
Goods available for sale	105		$ 1,855

Russell purchased a total of 105 units, which cost a total of $1,855. On May 31st a customer purchased 35 units. Russell's selling price was $26 per unit.

To illustrate the different inventory cost flow assumptions, consider the following example of Russell Company, which purchased inventory at three different times at three different prices.

	Units	Cost per Unit	Total Cost
May 1 Purchase	20	$ 12	$ 240
May 15 Purchase	20	18	360
May 20 Purchase	20	23	460
Goods available for sale	60		$ 1,060

Russell purchased a total of 60 units, which cost a total of $1,060. On May 31st a customer purchased 20 units. Russell's selling price was $26 per unit.

To illustrate, Seller Co. sells merchandise to Buyer Inc. on account for $1,040. The freight terms are FOB shipping point and Buyer, Inc. pays $51 in cash to the freight company directly when the merchandise is delivered to Buyer Inc. The cost of the merchandise is $797. Both companies use a perpetual inventory system.

Fill in the amounts in the sales entries for Seller Co. and the inventory purchase entries for Buyer Inc. Roll over the accounts for help with the transactions.

Reed Corp. is a medium-sized manufacturer of electronic components that supplies Brady Co. with many component parts. Brady Co. also supplies Reed with some of the finished products it develops. Hence, both companies purchase from and sell merchandise to each other. Both companies are located in Oregon, which has no sales tax, and both companies use a perpetual inventory system. Therefore, sales tax does not apply to any of these transactions and you should record merchandise transactions using the perpetual inventory method.

Analyze each transaction (described by rolling over the date) from the perspective of each party. In the first journal space, record each transaction as it affects Reed Corp., on the appropriate day. Then record the same transaction in the bottom journal space as it affects Brady Co.

If no entry is required, select "No entry required" and leave the amount boxes blank. If compound entries, for those boxes in which no entry is required, leave the box blank.

Date	Reed Corp.	Debit	Credit
May 2	Accounts Receivable-Brady Co.
	Sales
	Cost of Goods Sold
	Merchandise Inventory
May 3	No entry required
	No entry required
May 7	Merchandise Inventory
	Accounts Payable-Brady Co.
May 8	No entry required
	No entry required
May 10	Sales Returns and Allowances
	Accounts Receivable-Brady Co.
	Merchandise Inventory
	Cost of Goods Sold
May 14	Cash
	Accounts Receivable-Brady Co.
May 15	Accounts Payable-Brady Co.
	Cash
	Merchandise Inventory

Date	Brady Co.	Debit	Credit
May 2	Merchandise Inventory
	Accounts Payable-Reed Corp.
May 3	Merchandise Inventory
	Cash
May 7	Accounts Receivable-Reed Corp.
	Sales
	Cost of Goods Sold
	Merchandise Inventory
May 8	Delivery Expense
	Cash
May 10	Accounts Payable-Reed Corp.
	Merchandise Inventory
May 14	Accounts Payable-Reed Corp.
	Cash
May 15	Cash
	Sales Discounts
	Accounts Receivable-Reed Corp.