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Chapter 13: Q4BE (page 658)

Question: Amsterdam Company uses a periodic inventory system. For April, when the company sold 600 units, the following information is available.

Units Unit Cost Total Cost

April 1 inventory 250 \(10 \) 2,500

April 15 purchase 400 12 4,800

April 23 purchase 350 13 4,550

1,000 $11,850

Compute the April 30 inventory and the April cost of goods sold using the average-cost method.

Short Answer

Expert verified

The ending inventory on April 30 was $5,175 and the cost of goods sold amounts to$6,675.

Step by step solution

01

Step-by-step-solutionStep1: Periodic inventory system

The periodic inventory system is a method of inspecting inventory at the end of the period. Thus under this method, instead of keeping track of inventory for each transaction, the inventories are inspected only at the end of the period. This is why it is called a periodic inventory system

02

Cost of goods available for sale and the average cost

Costofgoodsavailableforsale=OpeningInventory+TotalPurchases=2500+(4800+4550)=$11,850Averagecostperunit=CostofgoodsavailableforsaleTotalunits=118501000=$11.85

03

Closing inventory

Closinginventory(inunits)=Openinginventory+TotalPurchases-Sales=250+(450+350)-600=450Closinginventory(value)=Closinginventory(units)脳Averagecostperunit=450X11.50=$5,175

04

Cost of goods sold

Costofgoodssold=Costofgoodsavailableforsale-Valueofclosinginventory=11850-5175=$6,675

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Most popular questions from this chapter

P17-2 (L01) (Available-for-Sale Debt Securities) On January 1, 2017, Novotna Company purchased \(400,000, 8% bonds of

Aguirre Co. for \)369,114. The bonds were purchased to yield 10% interest. Interest is payable semiannually on July 1 and

January 1. The bonds mature on January 1, 2022. Novotna Company uses the effective-interest method to amortize discount

or premiums. On January 1, 2019, Novotna Company sold the bonds for \(370,726 after receiving interest to meet its liquidity

needs.

Instructions

(a) Prepare the journal entry to record the purchase of bonds on January 1. Assume that the bonds are classified as available for-

sale.

(b) Prepare the amortization schedule for the bonds.

(c) Prepare the journal entries to record the semiannual interest on July 1, 2017, and December 31, 2017.

(d) If the fair value of Aguirre bonds is \)372,726 on December 31, 2018, prepare the necessary adjusting entry. (Assume the

On December 31, 2017, the fair value adjustment balance was a debit of $3,375.)

(e) Prepare the journal entry to record the sale of the bonds on January 1, 2019.

(Equity Securities Entries) McElroy Company has the following portfolio of investment securities at September

30, 2017, its most recent reporting date.

Investment Securities Cost Fair Value

Horton, Inc. common (5,000 shares) \(215,000 \)200,000

Monty, Inc. preferred (3,500 shares) 133,000 140,000

Oakwood Corp. common (1,000 shares) 180,000 179,000

On October 10, 2017, the Horton shares were sold at a price of \(54 per share. In addition, 3,000 shares of Patriot common stock

were acquired at \)54.50 per share on November 2, 2017. December 31, 2017, fair values were Monty \(106,000, Patriot

\)132,000, and Oakwood $193,000.

Instructions

Prepare the journal entries to record the sale, purchase, and adjusting entries related to the equity securities in the last quarter of 2017

Question: Distinguish between debt security and equity security.

Distinguish between a determinable current liability and a contingent liability. Give two examples of each type.

BE13-11 (L03) Buchanan Company recently was sued by a competitor for patent infringement. Attorneys have determined that it is probable that Buchanan will lose the case and that a reasonable estimate of damage to be paid by Buchanan is \(300,000. In light of this case, Buchanan is considering establishing a \)100,000 self-insurance allowance. What entry(ies), if any, should Buchanan record to recognize this loss contingency?
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