(a)
Periodic Inventory System: It is a system in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.
Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time.
To Record: The
(a)
Explanation of Solution
Record the transaction for the month December, 2017.
Date | Account Title and Explanation | Post Ref. | Debit($) | Credit($) |
December 3, 2017 | Inventory (A+) | 2,880 (1) | ||
Accounts Payable (L+) | 2,880 | |||
(To record the purchase of inventory on account) | ||||
December 5, 2017 | Accounts Receivable(A+) | 3,960 (2) | ||
Sales Revenue (E+) | 3,960 | |||
(To record the revenue rendered on account) | ||||
Cost of goods sold (E–) | 2,808 (3) | |||
Inventory (A–) | 2,808 | |||
(To record a credit sale and the cost of credit sale) | ||||
December 7, 2017 | Sales Return and Allowances (E–) | 180 | ||
Accounts Receivables (A–) | 180 | |||
(To record returned of inventory) | ||||
Inventory (A+) | 144 | |||
Cost of goods sold (E+) | 144 | |||
(To record a credit sale and the cost of credit sale) | ||||
December 17, 2017 | Inventory (A+) | 1,760 (4) | ||
Cash (A–) | 1,760 | |||
(To record the purchase of inventory by cash) | ||||
December 22, 2017 | Accounts Receivable(A+) | 1,900 | ||
Sales Revenue (E+) | 1,900 (5) | |||
(To record the revenue rendered on account) | ||||
Cost of goods sold (E–) | 1,440 (6) | |||
Inventory (A–) | 1,440 | |||
(To record a credit sale and the cost of credit sale) | ||||
December 31, 2017 | Salaries and Wages Expense (E –) | 400 | ||
Salaries and Wages Payable (L+) | 400 | |||
(To record the amount of accrued salaries for the month.) | ||||
December 31, 2017 |
| 200 | ||
| 200 | |||
(To record the amount of depreciation for the month) | ||||
December 31, 2017 | Income tax expense (E–) | 215 | 215 | |
Income tax payable (L+) | ||||
(To record income tax expense for the year) |
Table (1)
Working Notes:
Calculate the amount of inventory on December 3.
Calculate the amount of accounts receivable on December 5.
Calculate the amount of cost of goods sold on December 5.
Calculate the amount of purchase of inventory on December 17.
Calculate the amount of sales revenue on December 22.
Calculate the amount of cost of goods sold on December 22.
(b)
T Accounts: T- accounts are prepared for all the business transactions. First, journal entries are passed and then transferred to the respective ledger accounts where, they are recorded and summarized in either side of the ‘T’ format. It is divided into two parts by a vertical line, that is, the left side and the right side. The left side of the T-account is known as the debit side and the right side of the T-account is known as the credit side. The account name appears on the top of the T-account.
To Prepare: The ledger account for the above transactions recorded.
(b)
Explanation of Solution
Cash Account
Date | Particulars | Debit | Date | Particulars | Credit |
($) | ($) | ||||
December | Opening balance | 4,800 | December | Inventory | 1,760 |
1 | 17 | ||||
December | Ending balance | 3,040 | |||
31 |
Table (2)
Inventory Account
Date | Particulars | Debit | Date | Particulars | Credit |
($) | ($) | ||||
December | Opening balance | 1,800 | December | Cost of goods sold | 2,808 |
1 | 5 | ||||
December | Accounts payable | 2,880 | December | Cost of goods sold | 1,440 |
3 | 22 | ||||
December | Cost of goods sold | 144 | |||
7 | |||||
December | Cash | 1,760 | |||
17 | |||||
December | Ending balance | 2,336 | |||
31 |
Table (3)
Equipment Account
Date | Particulars | Debit | Date | Particulars | Credit |
($) | ($) | ||||
December | Ending balance | 21,000 | |||
31 |
Table (4)
Accumulated Depreciation
Date | Particulars | Debit | Date | Particulars | Credit |
($) | ($) | ||||
December | Opening balance | 1,500 | |||
1 | |||||
December | Depreciation expense | 200 | |||
31 | |||||
December | Ending balance | 1,700 | |||
31 |
Table (5)
Accounts Payable Account
Date | Particulars | Debit | Date | Particulars | Credit |
($) | ($) | ||||
December | Opening balance | 3,000 | |||
1 | |||||
December | Inventory | 2,880 | |||
5 | |||||
December | Ending balance | 5,880 | |||
31 |
Table (6)
Salaries and Wage Payable Account
Date | Particulars | Debit | Date | Particulars | Credit |
($) | ($) | ||||
December | Opening balance | 400 | |||
1 | |||||
December | Ending balance | 400 | |||
31 |
Table (7)
Cost of Goods Sold Account
Date | Particulars | Debit | Date | Particulars | Credit |
($) | ($) | ||||
December | Inventory | 2,808 | December | Inventory | 144 |
5 | 7 | ||||
December | Inventory | 1,440 | |||
22 | |||||
December | Ending balance | 4,104 | |||
31 |
Table (8)
Depreciation Account
Date | Particulars | Debit | Date | Particulars | Credit |
($) | ($) | ||||
December | Opening balance | 200 | |||
1 | |||||
December | Ending balance | 200 | |||
31 |
Table (9)
Common Stock Account
Date | Particulars | Debit | Date | Particulars | Credit |
($) | ($) | ||||
December | Opening balance | 10,000 | |||
1 | |||||
December | Ending balance | 10,000 | |||
31 |
Table (10)
Retained Earnings Account
Date | Particulars | Debit | Date | Particulars | Credit |
($) | ($) | ||||
December | Opening balance | 17,000 | |||
1 | |||||
December | Ending balance | 17,000 | |||
31 |
Table (11)
Sales Revenue Account
Date | Particulars | Debit | Date | Particulars | Credit |
($) | ($) | ||||
December | Accounts receivable | 3,960 | |||
5 | |||||
December | Accounts receivable | 1,900 | |||
22 | |||||
December | Ending balance | 5,860 | |||
31 |
Table (12)
Salaries and Wage Expense Account
Date | Particulars | Debit | Date | Particulars | Credit |
($) | ($) | ||||
December | Salaries and wage payable | 400 | |||
31 | |||||
December | Ending balance | 400 | |||
31 |
Table (13)
Sales Return and Allowances Account
Date | Particulars | Debit | Date | Particulars | Credit |
($) | ($) | ||||
December | Opening balance | 180 | |||
1 | |||||
December | Ending balance | 180 | |||
31 |
Table(14)
Accounts Receivable Account
Date | Particulars | Debit | Date | Particulars | Credit |
($) | ($) | ||||
December | Opening balance | 3,900 | December | Sales return and allowances | 180 |
1 | 7 | ||||
December | Sales revenue | 3,960 | |||
5 | |||||
December | Sales revenue | 1,900 | |||
22 | |||||
December | Ending balance | 9,580 | |||
31 |
Table (15)
Income Tax Expense
Date | Particulars | Debit | Date | Particulars | Credit |
($) | ($) | ||||
December | Income tax payable | 215 | |||
31 | |||||
December | Ending balance | 215 | |||
31 |
Table (16)
Income Tax Payable Account
Date | Particulars | Debit | Date | Particulars | Credit |
($) | ($) | ||||
December | Opening balance | 215 | |||
1 | |||||
December | Ending balance | 215 | |||
31 |
Table (17)
(c)
To Prepare: The adjusted trial balance at December 31, 2017.
(c)
Explanation of Solution
Prepare the adjusted trial balance.
W Company | ||
Adjusted trial balance | ||
December 31, 2017 | ||
Particulars | Debit | Credit |
($) | ($) | |
Cash | 3,040 | |
Inventory | 2,336 | |
Accounts receivable | 9,580 | |
Equipment | 21,000 | |
Accumulated depreciation | 1,700 | |
on equipment | ||
Accounts payable | 5,880 | |
Salaries and wages payable | 400 | |
Income tax payable | 215 | |
Common stock | 10,000 | |
Retained earnings | 17,000 | |
Sales revenue | 5,860 | |
Sales returns and allowances | 180 | |
Salaries and wages expense | 400 | |
Income tax expenses | 215 | |
Cost of goods sold | 4,104 | |
Depreciation expense | 200 | |
Total | $41,055 | $41,055 |
Table (18)
(d)
The income statement: This is a financial statement that shows the net income earned, or net loss suffered by a company, through reporting all the revenues earned, and expenses incurred, by the company over a specific period of time. An income statement is also known as an operations statement, an earnings statement, a revenue statement, or a
Prepare the income statement of W Company.
Classified Balance Sheet: This is a financial statement where the assets, liabilities, and
To Prepare: The income statement for the month ended December 31, 2017 and a classified balance sheet at December 31, 2017.
(d)
Explanation of Solution
W Company | ||
Income statement | ||
For the month ended December 31, 2017 | ||
Particulars | Amount | Amount |
($) | ($) | |
Sales revenue | 5,860 | |
Less: Sales return and allowances | (180) | |
Net sales | 5,680 | |
Less: Cost of goods sold | (4,104) | |
Gross profit | 1,576 | |
Operating expenses: | ||
Salaries and wages expense | 400 | |
Depreciation expense | 200 | |
Income tax expense | 215 | (815) |
Net income | $761 |
Table (19)
Prepare a classified balance sheet of W Company as on December 31, 2017.
W Company | ||
Classified balance sheet | ||
December 31, 2017 | ||
Particulars | Amount | Amount |
($) | ($) | |
Assets: | ||
Current assets: | ||
Cash | 3,040 | |
Inventory | 2,336 | |
Accounts receivable | 9,580 | |
Total current assets | 14,956 | |
Property, plant, and equipment: | ||
Equipment | 21,000 | |
Less: Accumulated depreciation | (1,700) | 19,300 |
Total assets | $34,256 | |
Liabilities and stockholder’s equity: | ||
Current liabilities: | ||
Accounts payable | 5,880 | |
Salaries and wage payable | 400 | |
Income tax payable | 215 | |
Total current liabilities | 6,495 | |
Stockholder’s equity | ||
Common stock | 10,000 | |
Retained earnings | 17,761 (7) | 27,761 |
Total liabilities and stockholder’s equity | $34,256 |
Table (20)
Working Note:
Calculate the amount of retained earnings.
Therefore, the income statement indicates a net income of $761 for the month ending December 31, 2017.
Therefore, the balance sheet of W Company as on December 31, 2017 indicates equal amounts of assets and liabilities of $34,256.
(e)
To Compute: The ending inventory and cost of goods sold under FIFO method.
(e)
Explanation of Solution
Calculate the ending inventory and cost of goods sold under FIFO method.
Step 1: Calculate cost of goods available for sale.
FIFO Method | |||
Particulars | Units | Unit Cost ($) | Cost of Goods Available for Sales |
($) | |||
Beginning Inventory | 3,000 | 0.6 | 1,800 |
Add: Purchase on | 4,000 | 0.72 | 2,880 |
December 3 | |||
Add: Purchase on | 2,200 | 0.8 | 1,760 |
December 17 | |||
Total | 9,200 | $6,440 |
Table (21)
Step 2: Calculate ending inventory under FIFO method.
FIFO Method | |||
Date | Units | Rates | Amount |
($) | ($) | ||
Purchase on | 2,200 | 0.8 | 1,760 |
December 17 | |||
Add: Purchase on | 800 (8) | 0.72 | 576 |
December 3 | |||
Total ending inventory | 3,000 | $2,336 |
Table (22)
Working Note:
Calculate an amount of purchases on December 3.
Calculate cost of goods sold under FIFO method.
Particulars | Amount |
($) | |
Cost of goods available for sale | 6,440 |
Less: Ending inventory | (2,336) |
Cost of goods sold | $4,104 |
Table (23)
Therefore, the ending inventory under FIFO method for 3,000 units is $2,336.
Therefore, the cost of goods sold under FIFO method is $4,104.
(f)
To Compute: The ending inventory and cost of goods sold under LIFO method.
(f)
Explanation of Solution
Compute ending inventory under LIFO method.
Date | Units | Rates | Amount |
($) | ($) | ||
Purchase on | 3,000 | 0.72 | 2,160 |
December 1 | |||
Total ending inventory | 3,000 | $2,160 |
Table (24)
Compute cost of goods sold under LIFO method.
Particulars | Amount |
($) | |
Cost of goods available for sale | 6,440 |
Less: Ending inventory | (2,160) |
Cost of goods sold | $4,280 |
Table (25)
Therefore, the ending inventory under LIFO method for 3,000 units is $2,160.
Therefore, the cost of goods sold under LIFO method is $4,280
Want to see more full solutions like this?
Chapter 6 Solutions
Financial Accounting: Tools for Business Decision Making, 8th Edition
- Langstons purchased $3,100 of merchandise during the month, and its monthly income statement shows a cost of goods sold of $3,000. What was the beginning inventory if the ending inventory was $1,250?arrow_forwardReid Company uses the periodic inventory system. On January 1, it had an inventory balance of 250,000. During the year, it made 613,000 of net purchases. At the end of the year, a physical inventory showed it had ending inventory of 140,000. Calculate Reid Companys cost of goods sold for the year.arrow_forwardLogo Gear purchased $2,250 worth of merchandise during the month, and its monthly income statement shows cost of goods sold of $2,000. What was the beginning inventory if the ending inventory was $1,000?arrow_forward
- On January 1, Pope Enterprises inventory was 625,000. Pope made 950,000 of net purchases during the year. On its year-end income statement, Pope reported cost of goods sold of 1,025,000. Calculate Popes December 31 ending inventory.arrow_forwardLast year, Nikkola Company had net sales of 2,299,500,000 and cost of goods sold of 1,755,000,000. Nikkola had the following balances: Refer to the information for Nikkola Company above. Required: Note: Round answers to one decimal place. 1. Calculate the average inventory. 2. Calculate the inventory turnover ratio. 3. Calculate the inventory turnover in days. 4. CONCEPTUAL CONNECTION Based on these ratios, does Nikkola appear to be performing well or poorly?arrow_forwardOn September 30, 2013, the general ledger of Leons Golf Shop, which uses the calendar year as its accounting period, showed the following year-to-date account balances: The merchandise inventory account had a 48,000 balance on January 1, 2013. The historical gross profit percentage is 40%. Leon prepares quarterly financial statements and takes physical inventory once a yearat the end of the accounting period. In order to prepare the financial statements for the third quarter, the store needs to have an estimate of ending inventory. You have been asked to use the gross profit method to estimate the ending inventory. Review the worksheet called GP. Study it carefully because it may have a solution format somewhat different from the one shown in your textbook.arrow_forward
- Plum Corporation began the month of May with $700,000 of current assets, a current ratio of 2.50:1, and an acid-test ratio of 1.10:1. During the month, it completed the following transactions (the company uses a perpetual inventory system). May 2 Purchased $50,000 of merchandise inventory on credit. May 8 Sold merchandise inventory that cost $55,000 for $110,000 cash. May 10 Collected $20,000 cash on an account receivable. May 15 Paid $22,000 cash to settle an account payable. May 17 Wrote off a $5,000 bad debt against the Allowance for Doubtful Accounts account. May 22 Declared a $1 per share cash dividend on its 50,000 shares of outstanding common stock. May 26 Paid the dividend declared on May 22. May 27 Borrowed $100,000 cash by giving the bank a 30-day, 10% note. May 28 Borrowed $80,000 cash by signing a long-term secured note. May 29 Used the $ 180,000 cash proceeds from the notes to buy new machinery. Required: Complete the table below showing Plum's (1) current ratio, (2)…arrow_forwardPlum Corporation began the month of May with $1,300,000 of current assets, a current ratio of 1.80:1, and an acid-test ratio of 1.40:1. During the month, it completed the following transactions (the company uses a perpetual inventory system). May 2 Purchased $75,000 of merchandise inventory on credit. May 8 Sold merchandise inventory that cost $45,000 for $150,000 cash. May 10 Collected $23,000 cash on an account receivable. May 15 Paid $31,500 cash to settle an account payable. May 17 Wrote off a $5,000 bad debt against the Allowance for Doubtful Accounts account. May 22 Declared a $1 per share cash dividend on its 58,000 shares of outstanding common stock. May 26 Paid the dividend declared on May 22. May 27 Borrowed $115,000 cash by giving the bank a 30-day, 10% note. May 28 Borrowed $130,000 cash by signing a long-term secured note. May 29 Used the $245,000 cash proceeds from the notes to buy new machinery. Required: Complete the table below showing Plum's…arrow_forwardHalifax Fisheries Inc. began the month of March with $760,000 of current assets, a current ratio of 2.5 to 1, and a quick ratio of 1.1 to 1. During the month, it completed the following transactions:Mar. 6 Bought $86,000 of merchandise on account. (The company uses a perpetual inventory system.) 11 Sold merchandise that cost $70,000 for $118,000. 15 Collected a $30,000 account receivable. 17 Paid a $32,000 account payable. 19 Wrote off a $14,000 bad debt against Allowance for Doubtful Accounts. 24 Declared a $1.75 per share cash dividend on the 41,000 outstanding common shares. 28 Paid the dividend declared on March 24. 29 Borrowed $90,000 by giving the bank a 30-day, 19% note. 30 Borrowed $110,000 by signing a long-term secured note. 31 Used the $200,000 proceeds of the notes to buy additional machinery.Required:Prepare a schedule showing Halifax Fisheries Inc.’s current ratio, quick ratio, and working capital after each of the transactions. (Round ratios to 2 decimal places and other…arrow_forward
- Koto Corporation began the month of June with $300,000 of current assets, a current ratio of 2.5:1, and anacid-test ratio of 1.4:1. During the month, it completed the following transactions (the company uses aperpetual inventory system).June 1 Sold merchandise inventory that cost $75,000 for $120,000 cash.3 Collected $88,000 cash on an account receivable.5 Purchased $150,000 of merchandise inventory on credit.7 Borrowed $100,000 cash by giving the bank a 60-day, 10% note.10 Borrowed $120,000 cash by signing a long-term secured note.12 Purchased machinery for $275,000 cash.15 Declared a $1 per share cash dividend on its 80,000 shares of outstanding common stock.19 Wrote off a $5,000 bad debt against the Allowance for Doubtful Accounts account.22 Paid $12,000 cash to settle an account payable.30 Paid the dividend declared on June 15.RequiredPrepare a table, showing the company’s (1) current ratio, (2) acid-test ratio, and(3) working capital after each transaction. Round ratios to two…arrow_forwardThe Holden Corp. company has the following purchases and sales during the year ended December 31, 2014. Inventory and Purchases Beginning: 130 units@ $51/unit March 28: 150 units @ $54/unit June 28: 150 units @ $50/unit The units have a selling price of $65.00 per unit. a) Please fill in the table by calculating the dollar value of cost of goods sold and ending inventory, as well as the gross profit earned by Holden Corp. using the FIFO system. Cost of Goods Sold Ending Inventory Gross Profit Date b) Prepare journal entries to record the following (assuming all sales and purchases are for cash): (a) The purchase on June 28, (b) The sale on July 17. Enter the transaction letter as the description when preparing a journal entry. When a transaction requires two separate journal entries, use the same letter for both descriptions. Dates must be entered in the format dd/mmm (ie. 15/Jan). 14 F Sales February 9:30 units July 17: 200 units FIFO E General Journal Account/Explanation Page GJB F…arrow_forwardOn January 1, 2017, Manuel Company's merchandise inventory was $300,000. During 2017, Manuel purchased $1,900,000 of merchandise and recorded sales of $2,000,000. The gross profit margin on these sales was 20% of the selling price. Required: 1. What is Manuel's merchandise inventory at December 31, 2017?arrow_forward
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningExcel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College