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Chapter 8: Q2BE (page 422)

Question:Matlock Company uses a perpetual inventory system. Its beginning inventory consists of 50 units that cost \(34 each. During June, the company purchased 150 units at \)34 each, returned 6 units for credit, and sold 125 units at $50 each.

Journalize the June transactions.

Short Answer

Expert verified

The value of closing inventory amounts to $646.

Step by step solution

01

Step-by-step-solutionStep1: Perpetual inventory system

The perpetual inventory system is a process of continuously updating the inventory for each and every transaction. Under this system, a separate inventory account is prepared, and for every purchase and issuance of inventory, this account is updated. At the end of the period, the inventory account shows the closing balance of the inventory.

02

Journal entry for purchase

Description

Debit

Credit

Inventory

$5,100

Accounts payable

$5,100

(Being inventories purchased)

03

Journal entry for purchase return

Description

Debit

Credit

Accounts payable

$204

Accounts payable

$204

(Being inventories returned to the supplier)

04

Journal entry for sales

Description

Debit

Credit

Accounts receivables

$6250

Sales

$6250

(being goods sold)

Cost of goods sold

$4250

Inventories

$4250

(Being cost of goods sold)

The totalamount of goods sold was $4,250 and the sales made for $6,250.

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Most popular questions from this chapter

Cruise Industries purchased \(10,800 of merchandise on February 1, 2017,

subject to a trade discount of 10% and with credit terms of 3/15, n/60. It returned \)2,500 (gross price before trade or cash discount)on February 4. The invoice was paid on February 13.

Instructions

(a) Assuming that Cruise uses the perpetual method for recording merchandise transactions, record the purchase, return, and payment using the gross method.

(b) Assuming that Cruise uses the periodic method for recording merchandise transactions, record the purchase, return, and payment using the gross method.

(c) At what amount would the purchase on February 1 be recorded if the net method were used?

Trout Company uses the LIFO method for financial reporting purposes but FIFO for internal reporting purposes. At January 1, 2017, the LIFO reserve has a credit balance of \(1,300,000. At December 31, 2017, Trout鈥檚 internal reports indicatedthat the FIFO inventory balance was \)2,900,000 and for external reporting purposes the LIFO inventory balance was $1,500,000.What is the amount of the LIFO reserve and the LIFO effect related to 2017? What is the journal entry needed to record the LIFOeffect at December 31, 2017?

At December 31, 2016, Stacy McGill Corporation reported current assets of \(370,000 and current liabilities of \)200,000. The following items may have been recorded incorrectly.

1. Goods purchased costing \(22,000 were shipped f.o.b. shipping point by a supplier on December 28. McGill received andrecorded the invoice on December 29, 2016, but the goods were not included in McGill鈥檚 physical count of inventorybecause they were not received until January 4, 2017.

2. Goods purchased costing \)15,000 were shipped f.o.b. destination by a supplier on December 26. McGill received andrecorded the invoice on December 31, but the goods were not included in McGill鈥檚 2016 physical count of inventorybecause they were not received until January 2, 2017.

3. Goods held on consignment from Claudia Kishi Company were included in McGill鈥檚 December 31, 2016, physical countof inventory at \(13,000.

4. Freight-in of \)3,000 was debited to advertising expense on December 28, 2016.

Instructions

(a) Compute the current ratio based on McGill鈥檚 balance sheet.

(b) Recompute the current ratio after corrections are made.

(c) By what amount will income (before taxes) be adjusted up or down as a result of the corrections?

Accounting, Analysis, and Principles

Englehart Company sells two types of pumps. One is large and is for commercial use. The other is smaller and is used in residentialswimming pools. The following inventory data is available for the month of March.

Price per

Units Unit Total

Residential Pumps

Inventory at Feb. 28: 200 \( 400 \) 80,000

Purchases:

March 10 500 \( 450 \)225,000

March 20 400 \( 475 \)190,000

March 30 300 \( 500 \)150,000

Sales:

March 15 500 \( 540 \)270,000

March 25 400 \( 570 \)228,000

Inventory at March 31: 500

Commercial Pumps

Inventory at Feb. 28: 600 \( 800 \)480,000

Purchases:

March 3 600 \( 900 \)540,000

March 12 300 \( 950 \)285,000

March 21 500 \(1,000 \)500,000

Sales:

March 18 900 \(1,080 \)972,000

March 29 600 \(1,140 \)684,000

Inventory at March 31: 500

Accounting

(a) Assuming Englehart uses a periodic inventory system, determine the cost of inventory on hand at March 31 and thecost of goods sold for March under first-in, first-out (FIFO).

(b) Assume Englehart uses dollar-value LIFO and one pool, consisting of the combination of residential and commercialpumps. Determine the cost of inventory on hand at March 31 and the cost of goods sold for March. Assume Englehart鈥檚initial adoption of LIFO is on March 1. Use the double-extension method to determine the appropriate price indices.

(Hint:The price index for February 28/March 1 should be 1.00.) (Round the index to three decimal places.)

Analysis

(a) Assume you need to compute a current ratio for Englehart. Which inventory method (FIFO or dollar-value LIFO) doyou think would give you a more meaningful current ratio?

(b) Some of Englehart鈥檚 competitors use LIFO inventory costing and some use FIFO. How can an analyst compare theresults of companies in an industry, when some use LIFO and others use FIFO?

Principles

Can companies change from one inventory accounting method to another? If a company changes to an inventory accounting methodused by most of its competitors, what are the trade-offs in terms of the conceptual framework discussed in Chapter 2 of the textbook?

Question:Included in the December 31 trial balance of Rivera Company are the following assets.

Cash \( 190,000 Work in process \)200,000

Equipment (net) 1,100,000 Accounts receivable (net) 400,000

Prepaid insurance 41,000 Patents 110,000

Raw materials 335,000 Finished goods 170,000

Prepare the current assets section of the December 31 balance sheet.A
See all solutions

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