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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

Question: Shania Twain Company was formed on December 1, 2016. The following information is available from Twain’s inventory records for Product BAP.

Units Unit Cost

January 1, 2017 (beginning inventory) 600 $ 8.00

Purchases:

January 5, 2017 1,200 9.00

January 25, 2017 1,300 10.00

February 16, 2017 800 11.00

March 26, 2017 600 12.00

A physical inventory on March 31, 2017, shows 1,600 units on hand.

Instructions

Prepare schedules to compute the ending inventory at March 31, 2017, under each of the following inventory methods.

(a) FIFO (b) LIFO. (c) Weighted-average (round unit costs to two decimal places).

Case 3: The Kroger Company

The Kroger Company reported the following data in its annual report (in millions).

January 31, February 1, February 2,

2015 2014 2013

Net sales \(108,465 \)98,375 $96,619

Cost of sales (using LIFO) 85,512 78,138 76,726

Year-end inventories using FIFO 6,933 6,801 6,244

Year-end inventories using LIFO 5,688 5,651 5,146

Instructions

(a) Compute Kroger’s inventory turnovers for fiscal years ending January 31, 2015, and February 1, 2014, using:

(1) Cost of sales and LIFO inventory.

(2) Cost of sales and FIFO inventory.

(b) Some firms calculate inventory turnover using sales rather than cost of goods sold in the numerator. Calculate Kroger’s fiscal years ending January 31, 2015, and February 1, 2014, turnover, using:

(1) Sales and LIFO inventory.

(2) Sales and FIFO inventory.

(c) State which method you would choose to evaluate Kroger’s performance. Justify your choice.

What is a repurchase agreement (product financing) arrangement? How should a product repurchase agreement be reported in the financial statements?

On January 1, 2017, Bonanza Wholesalers Inc. adopted the dollar-value LIFO inventory method for income tax and external financial reporting purposes. However, Bonanza continuedto use the FIFO inventory method for internal accounting and management purposes. In applying the LIFO method, Bonanzauses internal conversion price indexes and the multiple pools approach under which substantially identical inventory items aregrouped into LIFO inventory pools. The following data were available for inventory pool no. 1, which comprises products A andB, for the 2 years following the adoption of LIFO.

FIFO Basis per Records

Unit Total

Units Cost Cost

Inventory, 1/1/17

Product A 10,000 \(30 \)300,000

Product B 9,000 25 225,000

\(525,000

Inventory, 12/31/17

Product A 17,000 36 \)612,000

Product B 9,000 26 234,000

\(846,000

Inventory, 12/31/18

Product A 13,000 40 \)520,000

Product B 10,000 32 320,000

$840,000

Instructions

(a) Prepare a schedule to compute the internal conversion price indexes for 2017 and 2018. Round indexes to two decimal places.

(b) Prepare a schedule to compute the inventory amounts at December 31, 2017 and 2018, using the dollar-value LIFO inventory method.

Ann M. Martin Company makes the following errors during the current year.

(Evaluate each case independently and assume ending inventory in the following year is correctly stated.)

1. Ending inventory is overstated, but purchases and related accounts payable are recorded correctly.

2. Both ending inventory and purchases and related accounts payable are understated. (Assume this purchase was recordedand paid for in the following year.)

3. Ending inventory is correct, but a purchase on account was not recorded. (Assume this purchase was recorded and paidfor in the following year.)

Instructions

Indicate the effect of each of these errors on working capital, current ratio (assume that the current ratio is greater than 1), retained earnings, and net income for the current year and the subsequent year.
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