I Need help with Accounting for Inventories questions: 1. Western Company normal
ID: 2544025 • Letter: I
Question
I Need help with Accounting for Inventories questions:
1.
Western Company normally makes the journal entry for a purchase of inventory and recognition of the payable on receipt of a vendor invoice. On December 31 (year end) it receives an invoice for $1,000 from Far East Ltd. and records the purchase. However, the incoming shipment is actually still in transit (in mid Pacific) at year end and the sales terms were FOB destination. Western takes a physical count of inventory at the end of year as standard procedure. Western:
Choices a, b and c all represent correct statements
should reverse the purchase entry to correct the error
does not legally own the goods on December 31
should catch the error when it compares the count to the records (the book to physical adjustment
Choices a, b and c all represent incorrect statements
2.
Hammer Co. is in the business of buying hammers at wholesale prices and reselling them at retail prices. The following information for the month of February was collected by Hammer Co.'s Purchase and Sales departments:
If the company uses a FIFO cost flow assumption, what was the cost of the inventory on hand after the February 26th sale if a periodic inventory system and a perpetual inventory system was used?
Periodic System $2,200 Perpetual System $2,600
Periodic System $2,600 Perpetual System $2,200
None of the other alternatives are correct
Periodic System $2,600 Perpetual System $2,600
Periodic System $2,200 Perpetual System $1,950
3.
If a company uses the FIFO Method of valuing its inventory, this requires that:
It actually sells its oldest inventory first
It charges the costs associated with its oldest inventory to Cost of Sales first
It charges the costs associated with its most recently acquired inventory to Cost of Sales first
None of the above are correct statements
It actually sells its most recently acquired inventory first
4.
Freddy's Frogs sells inventory that had cost the company $1,800 for $2,500 whereby $2,000 is received in cash and the remainder is to be paid by the customer in 10 days (specific identification method is used). Which of the following is the correct journal entry to record the transaction if a perpetual inventory method is used by the company?
Dr. Cash $2000, Dr. A/R $500, Cr. Sales $2,500. Dr. Cost of goods sold $1,800, Cr. Inventory $1,800
None of the other alternatives are correct
Dr. cash $2,000. Dr. A/R $500, Cr. Sales $2,500
Dr. Cash $2000, Dr. A/R $500, Cr. Sales $2,500. Dr. Cost of goods sold $1,800, Cr. Purchases $1,800
Dr. Cash $2000, Dr. Loss on sale $500, Cr. Sales $2,500. Dr. Cost of goods sold $1,800, Cr. Purchases $1,800
Date Transactions Units Unit cost/sales price Feb 4 Beginning inventory 300 $15 9 Purchase 100 18 12 Sale 320 27 17 Purchase 150 20 26 Sale 100 30Explanation / Answer
1 Choices a, b and c all represent correct statements 2 Total sales=320+100=420 units Periodic inventory: Cost of sales under periodic inventory: From Beginning inventory 300 units @ 50 15000 From Purchase 100 units @ 18 1800 From Purchase 20 units @ 20 400 Total cost of sales 17200 Inventory From Purchase Feb 17. 130 units @ 20 2600 Perpetual inventory: Date Purchases Sales Cost of goods sold Balance Feb 4. 300 units @ 15=4500 Feb 9. 100 units @ 18 300 units @ 15=4500 100 units @ 18=1800 Feb 12. 320 units 300 units @15=4500 20 units @ 18=360 80 units @ 18=1440 Feb 17. 150 units @ 20 80 units @ 18=1440 150 units @ 20=3000 Feb 26. 100 units 80 units @ 18=1440 20 units @ 20=400 130 units @ 20=2600 Dec 31. 130 units @ 20=2600 Periodic System $2,600 Perpetual System $2,600 3 It actually sells its oldest inventory first It charges the costs associated with its oldest inventory to Cost of Sales first 4 Dr. Cash $2000, Dr. A/R $500, Cr. Sales $2,500. Dr. Cost of goods sold $1,800, Cr. Inventory $1,800
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