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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:Data for Amsterdam Company are presented in BE8-4. Compute the April 30 inventory and the April cost of

goods sold using the FIFO method.

Question:Presented below is a list of items that may or may not be reported as inventory in a company’s December 31 balance sheet.

1. Goods out on consignment at another company’s store.

2. Goods sold on an installment basis (bad debts can be reasonably estimated).

3. Goods purchased f.o.b. shipping point that are in transit at December 31.

4. Goods purchased f.o.b. destination that are in transit at December 31.

5. Goods sold to another company, for which our company has signed an agreement to repurchase at a set price that coversall costs related to the inventory.

6. Goods sold where large returns are predictable.

7. Goods sold f.o.b. shipping point that are in transit at December 31.

8. Freight charges on goods purchased.

9. Interest costs incurred for inventories that are routinely manufactured.

10. Costs incurred to advertise goods held for resale.

11. Materials on hand not yet placed into production by a manufacturing firm.

12. Office supplies.

13. Raw materials on which a manufacturing firm has started production but which are not completely processed.

14. Factory supplies.

15. Goods held on consignment from another company.

16. Costs identified with units completed by a manufacturing firm but not yet sold.

17. Goods sold f.o.b. destination that are in transit at December 31.

18. Short-term investments in stocks and bonds that will be resold in the near future.

Instructions

Indicate which of these items would typically be reported as inventory in the financial statements. If an item should not bereported as inventory, indicate how it should be reported in the financial statements.

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

What is the dollar-value method of LIFO inventory valuation? What advantage does the dollar-value method have over the specific goods approach of LIFO inventory valuation? Why will the traditional LIFO inventory costing method and the dollar-value LIFO inventory costing method produce different inventory valuations if the composition of the inventory base changes?

Explain the following terms.

(a) LIFO layer.

(b) LIFO reserve.

(c) LIFO effect.
See all solutions

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