Question 1 Prepare the journal entries to record the following transactions on A company’s books using a perpetual inventory system On November 3, A company sold €1,000,000 of merchandise on account to B company, terms 4/10, n/30. The cost of the merchandise (when A company purchased it) was €680,000. The freight cost of €3,000 was paid in cash by the A company on November 3. On November 6, B company returned €200,000 of the merchandise purchased November 3. The cost of the returned merchandise was €136,000. On November 8, A company received the balance due from B company.
Question 1
Prepare the
perpetual inventory system
On November 3, A company sold €1,000,000 of merchandise on account to B company,
terms 4/10, n/30. The cost of the merchandise (when A company purchased it) was
€680,000. The freight cost of €3,000 was paid in cash by the A company on November
3.
On November 6, B company returned €200,000 of the merchandise purchased
November 3. The cost of the returned merchandise was €136,000.
On November 8, A company received the balance due from B company.
Question 2
Given the information in Question 1, prepare the journal entries to record these transactions
on B Company’s books under a perpetual inventory system. Furthermore, show how the
transactions are recorded in the ledger account (T-account) for inventory.
Question 3
In November 2020, the Merchandising company C had a beginning inventory of €300,000.
During November, the C company made the following inventory purchases:
November 5 €100,000
November 10 €200,000
November 15 €150,000
November 20 €160,000
A physical count at the end of November revealed that the C company has an ending inventory
of €240,000. Compute the cost of the goods available for sale and the cost of the goods sold
using a periodic inventory system.
Question 4
The D company reports the following inventories for the month of December: Starting
inventory December 1 is 300 units @ €6, purchases of new inventory on December 5 (400 units
@ €7) and December 23 (200 units @ €8), and ending inventory of 250 units as of December
31.
Compute the cost of the ending inventory and the cost-of-good-sold under FIFO and
Average Cost method
Which costing method results in higher ending inventory (and why)?
Which method results in higher cost-of-goods-sold? How do these affect gross profits?
Compute inventory turnover and days in inventory for D company for both FIFO and
Average Cost methods. Discuss your results.
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