VenRam Stationery & Supplies sells a variety of school supplies including a vari

Question

VenRam Stationery & Supplies sells a variety of school supplies including a variety of calculators. The business began the first quarter (January to March) of 2018 with 20 (Casio fx-85MS) calculators at a total cost of $124,800. During the quarter, the company completed the following transactions. January 8 105 calculators were purchased at a cost of $5,840 each. In addition the business paid a freight charge of $610 cash on each calculator to have the inventory shipped from the point of purchase to their warehouse. January 31 The sales for January were 85 calculators which yielded total sales revenue of $767,550. ( 25 of these units were sold on account to longstanding customers) February 4 A new batch of 65 calculators was purchased at a total cost of $448,500 February 10 10 of the instruments purchased on February 4 were returned to the supplier, as they were not of the model ordered. February 28 During the month 58 calculators were sold at a price of $9,660 each. March 4 A customer, to whom 9 bicycles were sold during the first business day of February, returned 2 of the instruments, as they were of another brand. March 10 Owing to an increased demand, a further 118 calculators were purchased at a cost of $7,500 each; these were subject to a trade discount of 2% each. March 31 125 calculators were sold during March at a unit selling price of $10,300. March 31 An actual count of inventory was carried out which revealed that there were 28 units of that brand of merchandise in the store room. Unless otherwise stated, assume that all purchases were on account and received on the dates stated. Required: i) Prepare a perpetual inventory record for this merchandise, using the first in, first out (FIFO) method of inventory valuation to determine the company’s cost of goods sold for the quarter and the value of ending. ii) Given that selling, distribution and administrative costs for the quarter were $112,840, $102,100 and $103,760 respectively, prepare an income statement for VenRam Stationery & Supplies for the quarter ended March 31, 2018. ( iii) Journalize the January transactions, assuming the company uses a: - Periodic inventory system - Perpetual inventory system iv) The manager of VenRam has stated that his objective is to cut back on his tax liability and is of the view that the FIFO method would be best. Do you agree with him?

Part b Callahan Computers stores its inventory in a warehouse that was destroyed by Hurricane Irma in September 2018. The business began the year with inventory of $350,000. During the year, the business made net purchases of $1,600,000 and had net sales of $2,500,000. The company’s gross profit has historically been 30% of net sales revenue. Use the gross profit method to estimate the cost of the ending inventory destroyed in the hurricane

Explanation / Answer

i. Perpetual FIFO Purchases Sales Balance Qty. Rate Value Qty. Rate Value Qty. Rate Value 1/1/2018(bal.) 20 6240 124800 20 6240 124800 8-Jan 105 5840 613200 20 6240 124800 Freight 610 64050 105 6450 677250 31-Jan 20 6240 124800 65 6450 419250 40 6450 258000 4-Feb 65 6900 448500 40 6450 258000 65 6900 448500 10-Feb Purchase returns -10 6900 -69000 40 6450 258000 55 6900 379500 28-Feb 40 6450 258000 18 6900 124200 37 6900 255300 10-Mar 118 7350 867300 37 6900 255300 (7500*(1-2%) 118 7350 867300 31-Mar 37 6900 255300 88 7350 646800 30 7350 220500 Loss -2 7350 -14700 28 7350 205800 Total 296 2034150 268 1828350 28 7350 205800 COGS 1828350 Value of End.Inventory 205800 Sales Revenue for the quarter 85 767550 58*9660 560280 125*10300 1287500 268 2615330 Income statement for VenRam Stationery & Supplies for the quarter ended March 31, 2018 Sales Revenue 2615330 Less: COGS (as above) 1828350 Gross Profit 786980 Less: Operating expenses: Inventory pilferage(as above) 14700 Selling expense 112840 Distribution expense 102100 Admn. Exp. 103760 333400 Net Income 453580 iii. Jan.Transactions(Periodic) 1-Jan Balance 124800 (20 nos.) 8-Jan Purchases 613200 Accounts payable (105*5840) 613200 Freight-in 64050 Cash 64050 (105*610) 31-Jan Cash 541800 Accounts Receivables(767550/85*25) 225750 Sales Revenue 767550 Month-end Merchandise Inventory 677250 Purchases 613200 Freight-in 64050 COGS 544050 Merchandise Inventory 544050 iii. Jan.Transactions(Perpetual) 1-Jan Balance 124800 (20 nos.) 8-Jan Merchandise Inventory 613200 Accounts payable (105*5840) 613200 Merchandise Inventory 64050 Cash 64050 (105*610) 31-Jan Cash 541800 Accounts Receivables(767550/85*25) 225750 Sales Revenue 767550 COGS (FIFO) 544050 Merchandise Inventory 544050 (124800)+(65*6450) iv. NO. FIFO method results in increased tax liabilities as explained below: Under FIFO, goods sold are valued at the oldest purchase prices, for purposes of COGS valuation. Latest priced -ending inventory is deferred to the next accounting period. So, the gross profit & subsequent net income will be more resulting in increased tax liabilities Part b. Opening Inventory 350000 Add :Purchases 1600000 Total goods available for sale 1950000 Less: COGS(2500000/100*70) 1750000 Cost of Ending Inventory destroyed in the hurricane 200000

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