Exercise 6.

3
a) compute the company's cost of goods sold for the year

Gross profit margin × Net sale = Gross profit

11% × $1.2 = $0.132 billions

Net Sale - Gross Profit = COGS

COGS = $1.2 - $0.132 = $1.068 billions

b) Approximately how much inventory did PC Connection purchase during the year?

COGS- Beginning Inventory +End Inventory = Inventory Purchase

$1.068 - $0.069 + $0.057 = $1.056 billion

c) What factors might contribute to the company’s low gross profit margin?
A : Decrease in market sale price, Cost of production increse and underevaluation of ending inventories

d) Discuss reasons why PC Connection uses a perpetual inventory system.

A: Because perpetual inventory system is good for high cost value item and up to date so, it will lower risk of misstatement an
 Exercise 6.7
a) How were the amounts of beginning and ending inventory determined?
A: Inventory of year 1 end is $2,800 it will be beginning inventory of year 2 so, beginning will be $2,800 and endining inventory

b) Compute the amount of the cost of goods sold in Year 2.

COGS = Beginning inventory + Inventory Purchase - ending inventory
COGS = $2800 + $30200 - $3000 = $30000

c)

Date Description Debit Credit

1 COGS $30,000
inventory (closing balance ) $3,000
Inventory (opening balance) $2,800
Purchases $30,200
( to close purchse and inventory of COGS )
Date Description Debit Credit
Inventory $3,000
COGS $3,000
( to creat balance year- end in the inventory)

d) Prepare a partial income statement showing the shop’s gross profit for the year.
Net Sales $79,600
Less : COGS $30,000
Gross profit $49,600

e)_
Because of low cost items and all purchases recorded in purchases account and it will add inventory in the end of the year.

Exercise 6.12
A)
Date Description Debit credit
2-Jan Cash $117,000
Sales Revenue $117,000
COGS $90,000
Inventory $90,000

B)
End Inventory = Beginning inventory + inventory purchase - COGS
= $250000 +$50000 - $90000 = $210000
( on jan 7 )

c)
Description Debit Credit
Cash $117,000
Sales $117,000
( To record sold telescope )
Purchased $50,000
Accounts Payable $50,000
( to record purchased n/30)

d)
COGS = Beginning Inventory + Inventory purchase - End Inventory
= $250000 + $50000 - $210000 = $90000

e) Because of high cost item sky probe use perpeutual inventory system.

Problem 6.1 A
Date Description Debit Credit
5-Nov Account Receivable $13,390
Sale $13,390
( to record sold on receivable)
COGS $9,105
Inventory $9,105
( To record COGS)
9-Nov Purchased tools $3,800
Account Payable $3,800
( to record inventory purchase )
5-Dec Account Receivable $13,390
Cash $13,390
( to record cash from Bemidji )
9-Dec Accounts Payable $3,800
Cash $3,800
31-Dec COGS $1,710
Inventory $1,710
( to record COGS due to physical count in end )
Inventory per accounting records $183,790
Inventory as per physical count $182,080
Shrinkage loss $1,710

B)
Gross profit = Sale Revenue - COGs
= $13390 - $10815 ( COGS + Shirkage loss)
= $327968

C)
Claypool hardware Industry Average Difference
Annual Sale $1,024,900 $1,000,000 $24,900
Gross Profit $327,968 $250,000 $77,968
Gross margin 32% 25% 7%

d) Claypool gross profit ratio still in positive as compare to gross margin and already getting
more than average. therefore business benefit financially from its remote locations.

Exercise 6.2 A
HENDRY'S BOUTIQUE
Income Statement
Dec-11
Sales $226,000
Sales Return and allowance $2,500
Net Sale $223,500
COGS $100,575
Gross Profit $122,925
Operating Expense
Purchase Discount lost $250
Utilies Expense $4,120
office supply expense $520
Depreciation equipment expense $2,750
Rent Expense $6,100
Insurance Expense $900
Salaries Expense $88,095
Income Taxes Expense $8,190
$110,925
Net Icome $12,000

b)
Gross profit Margin = (Gross profit / Net sale) *100
= 55%

c) sales $226000 and sales returns $2500

Gross sale return in % =( $2500/ $22600 ) * 100 = 1.10 %
percentage of sell return is small it may be assumed that customers are large satisfied.

d) business is recording purchase as net amount and purchase discount account only open when
purchase is lost and the payment made after discount period.

e) Salas taxes payable is not an expense it is laibility which is collected from customers pocket and
paid to teasury federal government so, it will not be treated as expense.

f) operating cycles refer to accounts which convert material inventory to sales and sales to cash
and accoucts payable, thus here is accounts inventory , accounts receivable, sales revenue,
purchase , accouncts payable and COGScsales revenue, purchase , accouncts payable and COGS
 operating cycles refer to accounts which convert material inventory to sales and sales to cash
and accoucts payable, thus here is accounts inventory , accounts receivable, sales revenue,
purchase , accouncts payable and COGScsales revenue, purchase , accouncts payable and COGS

Date Quantity Unit cost Total Cost

Apr. 9 62 $1,500 $93,000
May. 1 28 $1,600 $44,800
Total 90 $3,100 $137,800
Exercise 8.2
General Journal
a) Specific identification method
Date Accounts Debit Credit
10-May COGS $137,800
Inventory $137,800
(COGS recorded as per specific identification)
b) Average-cost Method
Date Accounts Debit Credit
10-May COGS $137,700
Inventory $137,700
(COGS recorded as per average- cost method)

c) FIFO method
Date Accounts Debit Credit
10-May COGS $137,000
Inventory $137,000
(COGS recorded as per FIFO method)
d) LIFO method
Date Accounts Debit Credit
10-May COGS $138,000
Inventory $138,000
(COGS recorded as per FIFO method)
e)
FIFO is used in company's financial staements because amount of net income is increse to report investors and creditors, and

Exercise 8.3
a) 1. heating oil is stored in large storage tanks means old oil which is left will be mix with new so,
average cost method inventory is best for it.
2. the coal inventory is kept in bin and emptied from top by giant scooping machines it making
most acquire coal sold most recent so, LIFO method best decribe the coal inentory
3. the kerosene is in retial outlet due to off the self in five gallon so rotates on regular basis so, FIFO
will best for it.

b)
LIFO method results lowest income taxes liabilites (assuming fuel price increasing). LIFO helps in it
that cost of goos sold for the period, and rising in prices COGS sold higher and lowest income
payable than other methods
 LIFO method results lowest income taxes liabilites (assuming fuel price increasing). LIFO helps in it
that cost of goos sold for the period, and rising in prices COGS sold higher and lowest income
payable than other methods

c)
If company consider all combine it should be relatively homogenous. while inventories are physically
differ and it helps to make it seprate to count and make inventories, while company face unprofit in
one inventory so, it can be tracked. and more attention towards the profiable products.

Exerise
ll lower risk of misstatement and perpetual inventory gives more accurate information as compare to periodic inventory.
e $2,800 and endining inventory will be $3000.

ntory in the end of the year.

ort investors and creditors, and in reults higher income tax.

elps in it
me
elps in it
me

e physically
unprofit in
dic inventory.