The perpetual inventory system is traditionally used with merchandise with a high unit value.

The perpetual inventory system is traditionally used with merchandise with a high unit value.

Which inventory system will likely be used by a company with merchandise that has a high unit value?

Single entry inventory system

Perpetual inventory system

Periodic inventory system

Double entry inventory system

Since this ratio is significantly greater than 1, it suggests the use of the most conservative accounting techniques.

Given the following quality of earnings ratios, which suggests the company may be using the most conservative accounting techniques?

0.6

1.0

1.8

0.2

Determine the amount to be paid in full settlement of each of two invoices

Determine the amount to be paid in full settlement of each of two invoices, (a) and (b), assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period.



Merchandise
Freight
Paid by Seller Freight Terms
Returns and
Allowances
a. $36,000 $800 FOB destination, 1/10, n/30 $4,000
b. 44,900 375 FOB shipping point, 2/10, n/30 2,40

Answer:
a.
$31,680. Purchase of $36,000 less return of $4,000 less the discount of $320 [($36,000 – $4,000) × 1%].

b.
$42,025. Purchase of $44,900 less return of $2,400 less the discount of $850 [($44,900 – $2,400) × 2%] plus $375 of shipping.

During the current year, merchandise is sold for $18,300 cash and $295,700 on account

During the current year, merchandise is sold for $18,300 cash and $295,700 on account. The cost of the merchandise sold is $188,000. What is the amount of the gross profit?


Answer:
a. $126,000 ($18,300 + $295,700 – $188,000)

Based on the following data, estimate the cost of the ending merchandise inventory:Sales (net) $9,250,000

Based on the following data, estimate the cost of the ending merchandise inventory:


Sales (net) $9,250,000
Estimated gross profit rate 36%
Beginning merchandise inventory $ 180,000
Purchases (net) 5,945,000
Merchandise available for sale $6,125,000



Answer:


Merchandise available for sale………………………………………………… $6,125,000
Less cost of merchandise sold [$9,250,000 × (100% – 36%)]…………… 5,920,000
Estimated ending merchandise inventory…………………………………… $ 205,000

The beginning inventory of merchandise at Dunne Co. and data on purchases and sales for a three-month period

The beginning inventory of merchandise at Dunne Co. and data on purchases and sales for a three-month period ending June 30, 2014, are as follows:

Date Transaction

Number

of Units

Per

Unit Total

Apr. 3 Inventory 25 $1,200 $ 30,000

8 Purchase 75 1,240 93,000

11 Sale 40 2,000 80,000

30 Sale 30 2,000 60,000

May 8 Purchase 60 1,260 75,600

10 Sale 50 2,000 100,000

19 Sale 20 2,000 40,000

28 Purchase 80 1,260 100,800

June 5 Sale 40 2,250 90,000

16 Sale 25 2,250 56,250

21 Purchase 35 1,264 44,240

28 Sale 44 2,250 99,000

Instructions

1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3, using the first-in, first-out method.

2. Determine the total sales and the total cost of merchandise sold for the period. Journalize the entries in the sales and cost of merchandise sold accounts. Assume that all sales were on account.

3. Determine the gross profit from sales for the period.

4. Determine the ending inventory cost on June 30, 2014.

5. Based upon the preceding data, would you expect the inventory using the last-in,

first-out method to be higher or lower?

Answer:

2

Accounts Receivable 525,250

Sales 525,250*

Cost of Merchandise Sold 310,776

Merchandise Inventory 310,776

*$525,250 = $80,000 + $60,000 + $100,000 + $40,000 + $90,000 + $56,250 + $99,000

3. $214,474 ($525,250 – $310,776)

4. $32,864 ($26 units × $1,264)

5. Since the prices rose from $1,200 for the April 3 inventory to $1,264 for the purchase on June 21, we would expect that under last-in, first-out the inventory would be lower.

1.

Date

Purchases Cost of Merchandise Sold Inventory

Quantity

Unit

Cost

Total

Cost Quantity

Unit

Cost

Total

Cost Quantity

Unit

Cost

Total

Cost

Apr. 3 25 1,200 30,000

8 75 1,240 93,000 25

75

1,200

1,240

30,000

93,000

11 25

15

1,200

1,240

30,000

18,600 60 1,240 74,400

30 30 1,240 37,200 30 1,240 37,200

May 8 60 1,260 75,600 30

60

1,240

1,260

37,200

75,600

10 30

20

1,240

1,260

37,200

25,200 40 1,260 50,400

19 20 1,260 25,200 20 1,260 25,200

28 80 1,260 100,800 20

80

1,260

1,260

25,200

100,800

June 5 20

20

1,260

1,260

25,200

25,200 60 1,260 75,600

16 25 1,260 31,500 35 1,260 44,100

21 35 1,264 44,240 35

35

1,260

1,264

44,100

44,240

28 35

9

1,260

1,264

44,100

11,376 26 1,264 32,864

30 Balances 310,776 32,864