Practice questions chapter 6 and 13 PDF

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Exercise 6.2

Journal entries — perpetual inventory system

Using the perpetual inventory system, record the following transactions in the general journal of Fitzroy Ltd (assume GST does not apply): 1. 2. 3. 4. 5. 6. 7.

Purchased 240 units for $220 each on credit. Returned 12 units to the supplier. Sold 48 units for $380 each on credit. Purchased office supplies for $360 cash. Customer returned 6 of the units sold in (3). Sold 42 units for $390 each on credit. The physical inventory count at the end of the period consisted of 140 units of inventory.

1.

Inventory

52 800

Accounts Payable Purchase of inventory on credit. 2.

Accounts Payable

52 800

2 640

Inventory Return of 12 units of merchandise 3.

Accounts Receivable (48  $380) Sales

2 640

18 240 18 240

Sales on credit. Cost of Sales (48  $220)

10 560

Inventory Cost of inventory sold. 4.

Office Supplies Cash at Bank Purchase of office supplies.

10 560

360 360

5.

Sales Returns and Allowances (6  $380) Accounts Receivable

2 280 2 280

Return of 5 units from customer. Inventory (6  $220)

1 320

Cost of Sales

1 320

Returned merchandise put back into inventory. 6.

Accounts Receivable (42  $390)

16 380

Sales Sales on credit. Cost of Sales (42  $220) Inventory

16 380

9 240 9 240

Cost of inventory sold. 7.

Inventory Shortage Expense (4  $220) Inventory Missing units of inventory.

880 880

Exercise 13.6

FIFO and average cost flow methods — periodic and perpetual inventory systems

The following information relates to the inventory of a bookseller in the records of Bayside Books Ltd, a company registered for GST. All unit prices below exclude GST. July 1 Aug. 14 Sept. 25 Jan. 8 March3 April 13 June 10

Beginning Inventory Purchased Sold Purchased Purchased Sold Sold

8 1 1 9 1 0 5 1 1 3

@ $35 = $280 @ $38 = $418 @ $40 = $400 @ $42 = $210

Required A. Using a periodic system and the weighted average method, calculate the cost of the 11 items in inventory on 30 June and the cost of sales for the year. B. Using a perpetual system and the moving average method, calculate the cost of the year-end inventory and the cost of sales. C. Using a periodic system and the FIFO method, determine the cost of the 11 items in inventory on 30 June and the cost of sales for the year. D. Using a perpetual system and the FIFO method, determine the cost of the year-end inventory and the cost of sales. E. Compare the results obtained under requirements A, B, C and D above. A.

Weighted average method: Periodic Ending inventory =

Average cost Cost of sales B.

= =

11  average cost $38.47 = $423.17 $280  $418  $400  $210 34 units

= $38.47

23 units  $38.47 = $884.81

Moving average method: Perpetual Purchases Date

Explanatio n

1/7 14/8

Beg. invent. Purchases

Units

Unit Cost

11

$38

Sales Total Cost $418

Units

Unit Cost

Balance Total Cost

Units 8 19

Unit Cost

Total Cost

$35.00 $36.74

$280.00 $698.00

25/9 8/1 3/3 13/4 10/6

Sales Purchases Purchases Sales Sales

10 5

$40 $42

9

$36.74

$330.66

11 3

$39.09 $39.09

$429.99 $117.27

$400 $210

$877.92

Ending inventory $430.08 Cost of sales $877.92

10 20 25 14 11

$36.74 $38.37 $39.09 $39.09 $39.09

$367.34 $767.34 $977.34 $547.35 $430.08

C.

FIFO: Periodic Ending inventory: 5 units @ $42.00 6 units @ $40.00 11 units

$210.00 $240.00 $450.00

Cost of sales = $1308 – $450 = $858 8 units @ $35.00 11 units @ $38.00 4 units @ $40.00 23 units

$280.00 $418.00 $160.00 $858.00

Cost of goods available for sale: $280 + $418 + $400 + $210 = $1308 D.

FIFO: Perpetual Purchases

Date

Explanation

Units

1/7 14/8

Beg. invent. Purchases

11

25/9

Sales

8/1

Purchases

3/3

Purchases

13/4

Sales

10/6

Sales

Unit Cost

$38

Sales Total Cost

Units

5

$40 $42

Balance Total Cost

$418 8 1

10

Unit Cost

$35.00 $38.00

$280.00 $38.00

$400 $210

10 1

$38.00 $40.00

$380.00 $40.00

3

$40.00

$120.00

Units

Unit Cost

Total Cost

8 8 11

$35.00 $35.00 $38.00

$280

10

$38.00

$380

10 10

$38.00 $40.00

$780

10 10 5 9 5

$38.00 $40.00 $42.00 $40.00 $42.00

6 5

$40.00 $42.00

$698

$990 $570 $450

$858.00

Ending inventory $450.00 Cost of sales $858.00 E.

FIFO reported the same ending inventory balance and cost of sales under the periodic and perpetual system. The reported ending inventory balance and cost of sales for all options only resulted in slight variations. The highest ending inventory balance was recorded using FIFO. The lowest inventory balance was recorded using the weighted average method (periodic). In all cases, the cost of sales is inversely related to ending inventory, i.e. the highest inventory balance corresponds with the lowest reported cost of sales and the lowest ending inventory balance corresponds with the highest cost of sales calculation.

Exercise 13.7

FIFO and moving average methods — perpetual inventory

Chelsea’s Cameras Ltd records its inventory of digital cameras by using a perpetual inventory system on a FIFO basis. The following details are supplied for one particular popular make and model for the month of November. Ignore GST. Nov. 1

Inventory on hand consisted of 18 cameras costed at $160 each.

Purchases: Nov. 2 Nov. 20 Nov. 25

10 cameras at $150 each 20 cameras at $165 each 30 cameras at $158 each

Sales: Nov. 4 Nov. 22 Nov. 29

16 cameras at $290 each 22 cameras at $290 each 20 cameras at $310 each

Required A. B.

A.

Prepare an inventory record showing the above transactions. Assuming instead that the company uses the moving average method of recording cost of sales, calculate the cost of sales and ending inventory balance for the month of November and compare your answers with those from requirement A.

FIFO: Perpetual Purchases

Date

Explanation

Units

1/11 2/11

Beg. invent. Purchases

10

4/11

Sales

20/11

Purchases

22/11

Sales

25/11

Purchases

29/11

Sales

20

30

Sales

Unit Cost

Total Cost

$150

$1 500

$165

$158

Units

Unit Cost

Balance Total Cost

16

$160

$2 560

2 10 10

$160 150 165

320 1 500 1 650

$3 300

$4 740 10 10

$165 158

$1 650 1 580 $9 260

Ending inventory $3160 Cost of sales $9260

Units

Unit Cost

Total Cost

18 18 10 2 10 2 10 20

$160 160 150 160 150 $160 150 $165

$2 880 2 880 1 500 320 1 500 320 1 500 3 300

10

$165

1 650

10 30

$165 158

1 650 4 740

20

$158

3 160

B.

Moving average method: Perpetual Purchases

Date

Explanatio n

1/11 2/11 4/11 20/11 22/11 25/11 29/11

Beg. invent. Purchases Sales Purchases Sales Purchases Sales

Sales

Units

Unit Cost

Total Cost

10

$150

$1 500

20

$165

$3 300

30

$158

Unit s

Unit Cost

Balance Total Cost

16

$156.43

$2 502.88

22

161.785

$3 559.27

20

$158.95

$3 179.00 $9 241.15

$4 740

Unit s 18 28 12 32 10 40 20

Unit Cost

Total Cost

$160.00 156.43 156.43 161.785 161.785 $158.95 $158.95

$2 880.00 4 380.00 1 877.12 5 177.12 1 617.85 6 357.85 3 178.85

Ending inventory $3178.85 Cost of sales $9241.15 Under the FIFO method in A. above, ending inventory consists of the most recent purchases. Since the most recent purchases were at lower prices than earlier in the month, the ending inventory balance is lower than under the moving average approach in B. above. Cost of sales is correspondingly higher....