Question 2 A Journal entries — perpetual inventory system

Using the perpetual inventory system, record the following transactions in the general journal of Fitzroy
Ltd (assume GST does not apply):

1. Purchased 240 units for $220 each on credit.

2. Returned 12 units to the supplier.
3. Sold 48 units for $380 each on credit.
4. Purchased office supplies for $360 cash.
5. Customer returned 6 of the units sold in (3).
6. Sold 42 units for $390 each on credit.
7. The physical inventory count at the end of the period consisted of 140 units of inventory.

1. Inventory 52 800
Accounts Payable 52 800
Purchase of inventory on credit.

2. Accounts Payable 2 640

Inventory 2 640
Return of 12 units of merchandise

3. Accounts Receivable (48  $380) 18 240

Sales 18 240
Sales on credit.

Cost of Sales (48  $220) 10 560

Inventory 10 560
Cost of inventory sold.

4. Office Supplies 360

Cash at Bank 360
Purchase of office supplies.
5. Sales Returns and Allowances (6  $380) 2 280
Accounts Receivable 2 280
Return of 5 units from customer.

Inventory (6  $220) 1 320

Cost of Sales 1 320
Returned merchandise put back into inventory.

6. Accounts Receivable (42  $390) 16 380

Sales 16 380
Sales on credit.

Cost of Sales (42  $220) 9 240

Inventory 9 240
Cost of inventory sold.

7. Inventory Shortage Expense (4  $220) 880

Inventory 880
Missing units of inventory.
 Question 2 B Perpetual inventory system and physical stocktake

Bristols Bicycles maintains inventory records under the perpetual inventory system. At 30 June 2015, the
inventory balance determined by the system showed a value of $300 000. However, on
conducting a physical stocktake, ending inventory was calculated as being only $260 000. An
investigation revealed that the difference was due to two factors:

 bicycle theft, amounting to $32 000

 destruction of parts on bicycles exhibited in the shop, $8000.

Bicycle sales for the year amounted to $1 000 000, purchases were $560 000 and the balance
of inventory on hand at the beginning of the year was $220 000.

Required
Calculate the Cost of Sales and show the transactions in Inventory accounts for the year ended 30 June
2015.

GENERAL LEDGER

Cost of Sales No.

Date Explanation Post Debit Credit Balance
Ref.
June 30 Inventory SJ $480 000 $480 000
(220000+56
0000-
300000)

Inventory No.
Date Explanation Post Debit Credit Balance
Ref.
June 1 Balance $220 000
30 Purchases PJ $560 000 780 000
30 Cost of sales SJ 480 000 300 000
30 Theft and damages expense GJ 40 000 260 000
(32000+80
00)
 Question 4 A Bad debts — direct write-off and allowance methods
(excluding GST)

Centenary Ceramics deals in ceramic pots and figurines. All sales are conducted on a credit basis and no
cash discounts are given. Ignore GST. The following information was extracted from the
accounting records at 30 June 2015:

Sales $552 000

Sales returns and allowances 37 900
Cash collected 319 120
Debts to be written off 4 022

Required
A. Assume that Centenary Ceramics uses the direct write-off method of accounting for bad debts:
1. Show the general journal entry required to write-off the bad debts.
2. What amount would be shown for bad debts expense in the income statement at 30 June
2015?
3. What amount would be shown for accounts receivable in the balance sheet at 30 June 2015?
B. Assume that Centenary Ceramics uses the allowance method of accounting for bad debts and the
Allowance for Doubtful Debts account had a credit balance of $2645 at 1 July 2014. Also assume
that an allowance of 1% of net credit sales is required at 30 June 2015 (ignore GST):
1. Show the general journal entries required to write off the bad debts and bring in the required
allowance for doubtful debts.
2. What amount would be shown for bad debts expense in the income statement at 30 June
2015?
3. What amount would be shown for accounts receivable in the balance sheet at 30 June 2015?

A.
Bad Debts Expense $4 022
Accounts Receivable – xxx $4 022
(Bad debts written off using direct write-off
method)

Bad Debts Expense $4022 – Income Statement

Accounts Receivable $190 958 – Current Asset

Net Sales $552 000 – $37 900 – Cash collected [$319 120] –
Bad debts written off [$4022] = $190 958
B.
Allowance for Doubtful Debts $4 022
Accounts Receivable – xxx $4 022
(Bad debts written off using allowance method)

Bad Debts Expense (sales – sales return)x1% 5 141

Allowance for Doubtful Debts 5 141
(Bad debts provided for 1% of net credit sales)

Bad Debts Expense $5141 – Income Statement

Accounts Receivable $191 216 – Current Asset

Net Sales [$552 000 – $37 900] – cash collected
[$319 120] = $194 980
Deduct allowance for doubtful debts
($2645 – $4022 + $5141) = $3 764
$191 216
 Question 4B Depreciation methods

Hampstead Ltd purchased new equipment on 1 January 2015, at a cost of $590 000 net of GST. The
company estimated that the equipment has a useful life of 5 years and a residual value of $45 000.

Required
Assuming a financial year ending 30 June, calculate the amount of depreciation expense for each year
ending 30 June 2015 through to 30 June 2020, with each of the following methods:
1. straight-line
2. diminishing balance.

1. Straight-line:

($590 000 – $45 000)/5 = $109 000 per annum.

Depreciation for the year ending 30 June 2015 = $109 000  2 = $54 500
Depreciation for each of the years ending 30 June 2016–19 = $109 000
Depreciation for the year ending 30 June 2020 = $54 500

2. Diminishing-balance:

5 $45 000
Rate of depreciation – 1– $590 000 = 1 – 0.60 = 40%

Year ended 30 Depreciation Carrying

June amount
2015 *$118 000 $472 000
2016 188 800 283 200
2017 113 280 = 169 920
2832
00 x
40%
2018 67 968 101 952
2019 40 780.80 61 171.20
2020 16 171.20 45 000
$545 000

* 40%  $590 000  6/12

* $16 171.20 adjusted to produce a carrying amount of $45 000 residual
value.