PRACTISE MATHS

Ex. 188
On October 1, Belton Bicycle Store had an inventory of 20 ten speed bicycles at a cost of $200
each. During the month of October, the following transactions occurred.

Oct. 4 Purchased 30 bicycles at a cost of $200 each from Kuhn Bicycle Company, terms
2/10, n/30.
6 Sold 18 bicycles to Team America for $300 each, terms 2/10, n/30.
7 Received credit from Kuhn Bicycle Company for the return of 2 defective bicycles.
13 Issued a credit memo to Team America for the return of a defective bicycle.
14 Paid Kuhn Bicycle Company in full, less discount.

Instructions
Prepare the journal entries to record the transactions assuming the company uses a perpetual
inventory system.

Solution 188 (20 min.)

Oct. 4 Merchandise Inventory......................................................... 6,000
Accounts Payable....................................................... 6,000

6 Accounts Receivable........................................................... 5,400

Sales........................................................................... 5,400

Cost of Goods Sold.............................................................. 3,600

Merchandise Inventory................................................ 3,600

7 Accounts Payable................................................................ 400

Merchandise Inventory................................................ 400

13 Sales Returns and Allowances............................................ 300

Accounts Receivable................................................... 300

Merchandise Inventory......................................................... 200

Cost of Goods Sold..................................................... 200

14 Accounts Payable ($6,000 – $400)...................................... 5,600

Cash ($5,600×.98).................................................... 5,488
Merchandise Inventory ($5,600×.02)......................... 112

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a
Ex. 208
Paxson Supply Company uses a perpetual inventory system. During September, the following
transactions and events occurred.

Sept. 3 Purchased 80 backpacks at $20 each from Barnes Company, terms 2/10, n/30.
Sept. 6 Received credit of $100 for the return of 5 backpacks purchased on Sept. 3 that
were defective.
Sept. 9 Sold 15 backpacks for $40 each to Starr Books, terms 2/10, n/30.
Sept. 13 Paid Barnes Company in full.

Instructions
Journalize the September transactions for Paxson Supply Company.
Ans: N/A, SO: 7, Bloom: AP, Difficulty: Medium, Min: 12, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: FSA

Ex. 194
Prepare the necessary journal entries to record the following transactions, assuming Darby
Company uses a perpetual inventory system.
(a) Darby sells $50,000 of merchandise, terms 1/10, n/30. The merchandise cost $30,000.
(b) The customer in (a) returned $5,000 of merchandise to Darby. The merchandise returned
cost $3,000.
(c) Darby received the balance due within the discount period.
Ans: N/A, SO: 3, Bloom: AP, Difficulty: Medium, Min: 7, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem
Solving, IMA: FSA

Solution 194 (7-9 min.)

(a) Accounts Receivable.................................................................... 50,000
Sales.................................................................................... 50,000
Cost of Goods Sold...................................................................... 30,000
Merchandise Inventory......................................................... 30,000

(b) Sales Returns and Allowances..................................................... 5,000

Accounts Receivable........................................................... 5,000
Merchandise Inventory................................................................. 3,000
Cost of Goods Sold.............................................................. 3,000

(c) Cash ($45,000 – $450)................................................................. 44,550

Sales Discounts ($45,000 × .01)................................................... 450
Accounts Receivable........................................................... 45,000

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Ex. 195
Newell Company completed the following transactions in October:

Credit Sales Sales Returns Date of

Date Amount Terms Date Amount Collection
Oct. 3 $ 600 2/10, n/30 Oct. 8
Oct. 11 1,200 3/10, n/30 Oct. 14 $ 400 Oct. 16
Oct. 17 5,000 1/10, n/30 Oct. 20 1,000 Oct. 29
Oct. 21 1,400 2/10, n/60 Oct. 23 200 Oct. 27
Oct. 23 1,800 2/10, n/30 Oct. 27 400 Oct. 28

Instructions
(a) Indicate the cash received for each collection. Show your calculations.
(b) Prepare the journal entry for the
(1) Oct. 17 sale. The merchandise sold had a cost of $3,500.
(2) Oct. 23 sales return. The merchandise returned had a cost of $140.
(3) Oct. 28 collection.
Newell uses a perpetual inventory system.
Ans: N/A, SO: 3, Bloom: AP, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: FSA

Solution 195 (20 min.)

(a) Oct. 8 $588 [Sales $600 – Sales discount $12 ($600 × .02)]

Oct. 16 $776 [Sales $1,200 – Sales return $400 = $800;

$800 – Sales discount $24 ($800 × .03)]

Oct. 29 $4,000 [Sales $5,000 – Sales return $1,000 = $4,000;

(Discount lapsed)]

Oct. 27 $1,176 [Sales $1,400 – Sales return $200 = $1,200;

$1,200 – Sales discount $24 ($1,200 × .02)]

Oct. 28 $1,372 [Sales $1,800 – Sales return $400 = $1,400;

$1,400 – Sales discount $28 ($1,400 × .02)]

(b) (1) Oct. 17 Accounts Receivable.......................................... 5,000

Sales......................................................... 5,000

Cost of Goods Sold............................................ 3,500

Merchandise Inventory.............................. 3,500

(2) Oct. 23 Sales Returns and Allowances........................... 200

Accounts Receivable................................. 200

Merchandise Inventory....................................... 140

Cost of Goods Sold.................................... 140

(3) Oct. 28 Cash................................................................... 1,372

Sales Discounts.................................................. 28
Accounts Receivable................................. 1,400

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a
Ex. 204

The adjusted trial balance of Kasten Company contained the following information:
Debit Credit
Sales $560,000
Sales Returns and Allowances $ 20,000
Sales Discounts 7,000
Cost of Goods Sold 386,000
Freight-out 2,000
Advertising Expense 15,000
Interest Expense 18,000
Store Salaries Expense 55,000
Utilities Expense 28,000
Depreciation Expense 7,000
Interest Revenue 30,000
Instructions
1. Use the above information to prepare a multiple-step income statement for the year ended
December 31, 2010.

2. Prepare a single-step income statement for the year ended December 31, 2010.
Ans: N/A, SO: 5,6, Bloom: AP, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem
Solving, IMA: Reporting

Solution 204 (20 min.)

1. KASTEN COMPANY
Income Statement
For the Year Ended December 31, 2010
Sales revenues
Sales........................................................................ $560,000
Less: Sales returns and allowances....................... $ 20,000
Sales discounts............................................ 7,000 27,000
Net sales.................................................................. 533,000
Cost of goods sold................................................... 386,000
Gross profit.............................................................. 147,000
Operating expenses
Store salaries expense................................. $55,000
Utilities expense........................................... 28,000
Advertising expense..................................... 15,000
Depreciation expense................................... 7,000
Freight-out.................................................... 2,000
Total operating expenses.................. 107,000

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 Income from operations............................................ 40,000
Other revenues and gains
Interest revenue................................................. 30,000
Other expenses and losses
Interest expense................................................. 18,000 12,000
Net income .............................................................. $ 52,000

2. KASTEN COMPANY
Income Statement
For the Year Ended December 31, 2010
Revenues
Net sales................................................................................... $533,000
Interest revenue......................................................................... 30,000
Total revenues..................................................................... 563,000
Expenses
Cost of goods sold..................................................................... $386,000
Operating expenses.................................................................. 107,000
Interest expense........................................................................ 18,000
Total expenses.................................................................... 511,000
Net income............................................................................................ $ 52,000

Ex. 172
Clarke Company uses the periodic inventory method and had the following inventory information
available:
Units Unit Cost Total Cost
1/1 Beginning Inventory 100 $4 $ 400
1/20 Purchase 400 $5 2,000
7/25 Purchase 200 $7 1,400
10/20 Purchase 300 $8 2,400
1,000 $6,200

A physical count of inventory on December 31 revealed that there were 400 units on hand.

Instructions
Answer the following independent questions and show computations supporting your answers.

1. Assume that the company uses the FIFO method. The value of the ending inventory at
December 31 is $__________.

2. Assume that the company uses the Average-Cost method. The value of the ending
inventory on December 31 is $__________.

3. Assume that the company uses the LIFO method. The value of the ending inventory on
December 31 is $__________.

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4. Determine the difference in the amount of income that the company would have reported if it
had used the FIFO method instead of the LIFO method. Would income have been greater or
less?
Ans: N/A, SO: 2, Bloom: AN, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

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Solution 172 (20 min.)
1. FIFO: Ending inventory $3,100
300 units @ $8 = $2,400
100 units @ $7 = 700
400 units $3,100

2. Average Cost: Ending inventory $2,480

$6,200 ÷ 1,000 = $6.20 per unit × 400 units = $2,480

3. LIFO: Ending Inventory $1,900

100 units @ $4 = $ 400
300 units @ $5 = 1,500
400 units $1,900

4. FIFO: Cost of goods sold $3,100 LIFO: Cost of goods sold $4,300
100 units @ $4 = $ 400 300 units @ $8 = $2,400
400 units @ $5 = 2,000 200 units @ $7 = 1,400
100 units @ $7 = 700 100 units @ $5 = 500
600 units $3,100 600 units $4,300

Income would have been $1,200 ($4,300 vs. $3,100) greater if the company used FIFO
instead of LIFO.

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Ex. 173
Kegin Company sells many products. Whamo is one of its popular items. Below is an analysis of
the inventory purchases and sales of Whamo for the month of March. Kegin Company uses the
periodic inventory system.
Purchases Sales
Units Unit Cost Units Selling Price/Unit
3/1 Beginning inventory 100 $40
3/3 Purchase 60 $50
3/4 Sales 70 $80
3/10 Purchase 200 $55
3/16 Sales 80 $90
3/19 Sales 60 $90
3/25 Sales 40 $90
3/30 Purchase 40 $60

Instructions
(a) Using the FIFO assumption, calculate the amount charged to cost of goods sold for March.
(Show computations)
(b) Using the weighted average method, calculate the amount assigned to the inventory on
hand on March 31. (Show computations)
(c) Using the LIFO assumption, calculate the amount assigned to the inventory on hand on
March 31. (Show computations)
Ans: N/A, SO: 2, Bloom: AP, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

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Solution 173 (20 min.)
Purchases Sales
Units Unit Cost Units Selling Price/Unit
3/1 Beginning inventory 100 $40
3/3 Purchase 60 $50
3/4 Sales 70 $80
3/10 Purchase 200 $55
3/16 Sales 80 $90
3/19 Sales 60 $90
3/25 Sales 40 $90
3/30 Purchase 40 $60
400 250
(a) Using FIFO - the earliest units purchased were the first sold.
3/1 100 @ $40 = $ 4,000
3/3 60 @ 50 = 3,000
3/10 90 @ 55 = 4,950
250 units $11,950 = the cost of goods sold
(b) Calculate the weighted average unit cost:
$20,400 ÷ 400 = $51
$51 × units in ending inventory (400 available less 250 sold = 150)
$51 × 150 = $7,650
(c) There are 150 units in ending inventory. They are comprised of the first units purchased
when LIFO is assumed.
3/1 100 @ $40 = $4,000
3/3 50 @ $50 = 2,500
150 units $6,500 = ending inventory

Ex. 175
London Co. uses a periodic inventory system. Its records show the following for the month of
May, in which 75 units were sold.
Units Unit Cost Total Cost
May 1 Inventory 35 $ 8 $ 280
15 Purchases 30 11 330
24 Purchases 40 12 480
Totals 105 $1,090

Instructions
Compute the ending inventory at May 31 and cost of goods sold using the FIFO and
LIFO methods. Prove the amount allocated to cost of goods sold under each method.
Ans: N/A, SO: 2, Bloom: AP, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

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Solution 175 (20 min.)
FIFO
Beginning inventory (35 X $8)................................................................... $280
Purchases
May 15 (30 X $11)............................................................................. $330
May 24 (40 X $12).............................................................................. 480 810
Cost of goods available for sale............................................................... 1,090
Less: Ending inventory (30 X $12)........................................................... 360
Cost of goods sold.................................................................................... $730

Proof
Date Units Unit Cost Total Cost
5/1 35 $ 8 $280
5/15 30 11 330
5/24 10 12 120
$ 730

LIFO
Cost of goods available for sale................................................................ $1,090
Less: Ending inventory (30 X $8).............................................................. 240
Cost of goods sold.................................................................................... $ 850

Proof
Date Units Unit Cost Total Cost
5/24 40 $12 $480
5/15 30 11 330
5/1 5 8 40
$850

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