7-4 Khan Enterprises Inc. (KEI) reports the following information for the first

Question

7-4 Khan Enterprises Inc. (KEI) reports the following information for the first three quarters of its 2008 fiscal year: Jan. 1, 2008Mar. 31, 2008June 30, 2008 Sept. 30, 2008 $251 144 265 475 $270 266 240 210 $150 Inventory, at cost Inventory, at LC and NRV Purchases for the quarter Sales for the quarter 230 235 500 145 (a) Prepare quarterly income statements for the first three quarters of KEI's 2008 fiscal year. Report the inventory in rately indicating the loss or loss recovery from adjusting inventory to the lower of cost Instructions the statements at cost, s and net realizable value. Assuming KEI records its LC and NRV adjustments in an allowance account, prepare the adjusting journal entries needed at March 31, June 30, and September 30, 2008 epar (b)

Explanation / Answer

INCOME STATEMENT For the quarter ending March 31,2008 Loss Sales $475 Beginning inventory $150 $5 (150-145) Add:Purchase $265 Less:Ending Inventory $251 $107 (251-144) Cost of Sales $164 (150+265-251) Income $311 (475-164) INCOME STATEMENT For the quarter ending June 30,2008 Loss Sales $210 Beginning inventory $251 Add:Purchase $240 Less:Ending Inventory $270 $4 (270-266) Cost of Sales $221 (251+240-270) Income ($11) (475-164) INCOME STATEMENT For the quarter ending September 30,2008 Loss Sales $500 Beginning inventory $270 Add:Purchase $235 Less:Ending Inventory $230 $0 Cost of Sales $275 (270+235-230) Income $225 (475-164) JOURNAL ENTRY Date ACCOUNT DEBIT CREDIT March31, 2008 Allowance for decline in NRV $107 Inventory $107 June 30,2008 Allowance for decline in NRV $4 Inventory $4 September 30,2008 No Entry is required

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