The owners also have expressed to you that they need to know their inventory and

Question

The owners also have expressed to you that they need to know their inventory and cost of goods sold to manage purchases and pricing. So, you are highly considering using a perpetual inventory system. You have a trial balance and must add the additional transactions and activities identified below. You can add accounts to the trial balance, as needed. Cherry & White Bikes had the following additional transactions The owners hire Lisa Marton to manage the store, paying her a salary of $2,800 a month. Lisa is paid on the 1st of every month, starting on July 1. June 1: July 1: Installed new light fixtures and display cases in the leased store. CWB paid $2,100 for the fixtures, $250 for shipping to the store, and $700 to an electrician to install. The landlord gave CWB permission to remove and dispose of the old fixtures. CWB sold the old fixtures for $190. CWB anticipates being in the store for at least 3 years. CWB cannot take the light fixtures with them if they relocate as they will revert to the lessor. CWB can take the display cases, which cost $7,600, if they move Both the display cases and light-fixtures have a five-year useful life August 1: CWB invests $4,000 in an 18-month certificate of deposit paying interest of 1%. November 1: CWB invests in a $2,000 3-month treasury bill paying interest of 0.5% December 12: One of the standard bikes sold was returned by the customer. The bike sold for $220. CWB paid $90 for it. CWB provided a full refund. CWB's policy is to provide a customer with a full refund within 30 da¥ of purchase as long as the bike is returned in good condition December 19: A customer puts down a deposit of $300 on a high-end racing bike that sells for $2,900. CWB ordered the bike from the manufacturer. The manufacturer promises CWB will have the bike at the store on January 3 December 30: Declared and paid dividends of $600 Here is other information on activity that occurred during the period. CWB offers bike tune-ups for $85 each. CWB's employees are experts in adjusting brakes Below is the number of tune-ups performed in each month. All customers pay in cash. (For recording the transacaitons, you can assume all tune-ups are done the last day of the month) Number of Tune-Ups Month ril May June August September October December 32 23 4

Explanation / Answer

Trading account of cherry & white bikes

1. Closing inventory - As no information is given regarding closing price for valuing the inventory , an average purchase price is taken for calculation ($173) and no. of bikes unsold were 13 pieces( purchases- sales).(13 x 173)

2. As there is no direct expenses are given for example- power, wages, carriage inward so purchases is only expense so formula for COGS is sales-gross profit (35370-24164) i.e. 13455

3. Other items are items of profit and loss account no relevance in determining COGS and closing inventory.

particulars amount particulars amount purchases 13455 sales-sales return 35370 gross profit 24164 closing stock 2249 37619 37169

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