PROBLEM 10-2 (IAA)

Compute the correct amount of inventory

MATERIALS 1,400,000
GOODS IN PROCESS 650,000
FINISHED GOODS IN FACTORY 2,000,000
FINISHED GOODS IN COMPANY-OWNED
RETAIL STORE (750,000/150%) 500,000
FINISHED GOODS IN THE HANDS OF
CONSIGNEES (400,000 x 60%) 240,000
FINISHED GOODS IN TRANSIT 250,000
FINISHED GOODS OUT ON APPROVAL 100,000
MATERIALS IN TRANSIT (330,000 + 30,000) 360,000
CORRECT INVENTORY 5,500,000
PROBLEM 10-4 (IAA)

a. Prepare journal entries,

including adjustments to record
the above transactions assuming
the company uses periodic
system and perpetual system.
PERIODIC SYSTEM PERPETUAL SYSTEM
1. PURCHASES 800,000 1. MERCHANDISE INVENTORY 800,000
ACCOUNTS PAYABLE 800,000 ACCOUNTS PAYABLE 800,000
2. ACCOUNTS PAYABLE 50,000 2.ACCOUNTS PAYABLE 50,000
PURCHASE RETURNS 50,000 MERCHANDISE INVENTORY 50,000
3. ACCOUNTS PAYABLE 600,000 3. ACCOUNTS PAYABLE 600,000
CASH 600,000 CASH 600,000
4. ACCOUNTS RECEIVABLE 1,580,000 4. ACCOUNTS RECEIVABLE 1,580,000
SALES 1,580,000 SALES 1,580,000
COST OF SALES 790,000
MERCHANDISE INVENTORY 790,000
5. SALES RETURN 40,000 5. SALES RETURN 40,000
ACCOUNTS RECEIVABLE 40,000 ACCOUNTS RECEIVABLE 40,000
MERCHANDISE INVENTORY 20,000
COST OF SALES 20,000
6. CASH 1,360,000 6. CASH 1,360,000
ACCOUNTS RECEIVABLE 1,360,000 ACCOUNTS RECEIVABLE 1,360,000
7. INVENTORY-DEC.30 60,000 7. INVENTORY SHORTAGE 10,000
INCOME SUMMARY(60 x 1,000) 60,000 MERCHANDISE INVENTORY 10,000

MERCHANDISE INVENTORY PER BOOK 70,000

PHYSICAL COUNT 60,000
SHORTAGE 10,000
b. Determine the cost of sales
under each inventory system.
PERIODIC SYSTEM PERPETUAL SYSTEM
INVENTORY-JANUARY 1 90,000 COST OF SALES (790,000 - 20,000) 770,000
PURCHASES 800,000 INVENTORY SHORTGE 10,000
PURCHASES RETURNS (50,000) 750,000 ADJUSTED COST OF SALES 780,000
GOODS AVAILABLE FOR SALE 840,000
LESS: INVENTORY-DEC.31 60,000
COST OF SALES 780,000
PROBLEM 10-6 (IAA)
a. Prepare journal entries to record the transactions using gross method and net method.
GROSS METHOD NET METHOD
1. PURCHASES 4,750,000 1. PURCHASES 4,655,000
ACCOUNTS PAYABLE 4,750,000 ACCOUNTS PAYABLE 4,655,000
2. FREIGHT IN 250,000 2. FREIGHT IN 250,000
CASH 250,000 CASH 250,000
3. ACCOUNTS PAYABLE 1,650,000 3. ACCOUNTS PAYABLE 1,617,000
CASH 1,617,000 CASH 1,617,000
PURCHASE DISCOUNT 33,000
ACCOUNTS PAYABLE 2,100,000 ACCOUNTS PAYABLE 2,058,000
CASH 2,100,000 PURCHASE DISCOUNT LOST 42,000
CASH 2,100,000
4. PURCHASE DISCOUNT LOST 20,000
ACCOUNTS PAYABLE(1,000,000 x 2%) 20,000
5. INVENTORY 1,000,000 5. INVENTORY 981,000
INCOME SUMMARY 1,000,000 INCOME SUMMARY 981,000

b. Compute inventory and cost of sales under each method.

GROSS NET
METHOD METHOD
PURCHASES 4,750,000 4,655,000
FREIGHT IN 250,000 250,000
TOTAL 5,000,000 4,905,000
LESS: PURCHASE DISCOUNTS 33,000 -
GOODS AVAILABLE FOR SALE 4,967,000 4,905,000
LESS: INVENTORY-DEC.31 1,000,000 981,000
COST OF SALES 3,967,000 3,924,000

ENDING INVENTORY:
GROSS (5,000,000/5) 1,000,000
NET (4,905,000/5) 981,000