BUS 321 - Intermediate Financial Accounting 1Burnett – Winter Quarter 2014

Exam 2

INVENTORY

PURCHASES – GROSS METHOD – PERIODIC INVENTORY SYSTEM On June 30th, OUR COMPANY purchased merchandise with an invoice price of $40,000 having terms 3/15, n/30 fob shipping point, which the supplier shipped on July 2nd. We received the merchandise on July 4th. Prepare the entries for the next two problems:

1. Prepare the entry to record the purchase.

7/2 Purchases 40,000.00Accounts payable 40,000.00

2. On July 9th when we pay our account in full.

Debit CreditAccounts Payable 40,000 Purchase Discount 1,200 Cash 38,800

Change in Total Assets

Change in Total

LiabilitiesChange in

Total EquityNet Income

for the periodCash Flow for

the period-40,000 -40,000 -38,800

PURCHASES – NET METHOD – PERPETUAL INVENTORY SYSTEM On July 13th, OUR COMPANY ordered merchandise with an invoice price of $70,000 having terms 3/15 n/30 fob shipping point, which the supplier shipped on July 15th and we received the merchandise on July 18th. Prepare the entries for the following two problems.

3. Prepare the entry to record the purchase AND indicate the date on which we should we record the purchase.

7/15 Inventory 67,900.00Accounts payable 67,900.00

4. On July 22nd when we write a $30,000 check to pay on our account

7/22 Accounts Payable 30,000Cash 30,000

5. GOODS IN TRANSIT The December 31, 2013, year-end inventory balance of Raymond Corporation is $210,000. You have been asked to review the following transactions to determine if they have been correctly recorded. Please write CORRECT if the transaction is recorded correctly or NOT CORRECT if the transaction was not recorded correctly.

A. Goods shipped to Raymond f.o.b. destination on December 26, 2013, were received on January 2, 2014. The invoice cost of $30,000 is included in the inventory balance. NC

b. At year-end, Raymond held $14,000 of merchandise on consignment from Harrison Company. This merchandise is included in the inventory balance. NC

c. On December 29, merchandise costing $6,000 was shipped to a customer f.o.b. shipping point and arrived at the customer’s location on January 3, 2014. The merchandise is not included in the preliminary inventory balance. C

D. At year-end, Raymond had merchandise costing $15,000 on consignment with Joclyn Corporation. The merchandise is not included in the preliminary inventory balance. NC

COST FLOW ASSUMPTIONS - PERIODIC During July, OUR COMPANY sold 40 units for $20 each. Use the following information for the next two problems

6. Use LIFO - Periodic to calculate Cost of Goods Sold and ending Inventory.

7. Prepare the journal entry to record Cost of Goods Sold and Ending Inventory in the problem above, if an entry is required. If no entry is required, please state no entry required.

CoGS 500.00Inventory 345.00

Inventory 150.00Purchases 695.00

8. COST FLOW ASSUMPTIONS - PERPETUAL Use AVERAGE COST - PERPETUAL to prepare the journal entry for the July 15th credit sale of 25 units at $20/unit.

Acc Rec 500.00Sales 500.00

Cost of goods sold 331.25Inventory 331.25

9. LOWER OF COST OR MARKET Calculate Market for each of the products in the following table and answer the question below.

Explain why the replacement cost is or is not appropriate to use as the Market for product B11. (Two sentence maximum.)

The replacement cost is not appropriate because all we will collect from selling this inventory is $52. It does not make sense to have inventory recorded at a value higher than what we will collect from selling it.

.

10. LOWER OF COST OR MARKET Use the information in the above table to calculate Lower of Cost or Market on an item by item basis.

Inventory at Lower of Cost or Market = 170