FINANCIAL ACCOUNTING

ACCT 201
ASSIGNMENT 3
Last Date for Submission 29th April 2017

You are required to work in this assignment individually. Any suspicious activities or
cheating will result zero grade in this assignment.
Q1 Describe perpetual system and periodic system [2 points]
Perpetual inventory system and periodic inventory systems are the two systems of keeping
records of inventory.
In perpetual inventory system, merchandise inventory and cost of goods sold are updated
continuously on each sale and purchase transaction. Some other transactions may also require an
update to inventory account for example, sale/purchase return, purchase discounts etc. Purchases
are directly debited to inventory account whereas for each sale two journal entries are made: one
to record sale value of inventory and other to record cost of goods sold. Purchases account is not
used in perpetual inventory system.
In periodic inventory system, merchandise inventory and cost of goods sold are not updated
continuously. Instead purchases are recorded in Purchases account and each sale transaction is
recorded via a single journal entry. Thus cost of goods sold account does not exist during the
accounting period. It is determined at the end of accounting period via a closing entry.

Q2. AG Inc. made a $10,000 sale on account with the following terms: 1/15, n/30. If the
company uses the net method to record sales made on credit.
Prepare the journal entries for following:
1- Record the sale [1 point]
2- Payment on $6,000 of sales within discount period? [1 point]
3- Payment on $4,000 of sales received after discount period? [1 point]

Date Accounts Dr. Cr.

1 Accounts Receivable (10,000 × 99%) 9,900
Sales Revenue 9,900
2 Cash (6,000 × 99%) 5,940
Accounts Receivable 5,940
3 Cash 4,000
Accounts Receivable 3,960
Sales Discount Forfeited 40

1
Q3 An inventory taken the morning after a large theft discloses $60,000 of goods on hand as
of March 12. The following additional data is available from the books:
Inventory on hand, March 1 $ 84,000
Purchases received, March 1 – 11 63,000
Sales (goods delivered to customers) 120,000

Past records indicate that sales are made at 50% above cost.
Required: Estimate the inventory of goods on hand at the close of business on March 11 by the
gross profit method and determine the amount of the theft loss. Show appropriate titles for all
amounts in your presentation. [2.5 points]
Beginning Inventory 84,000
(+) Purchase 63,000
(=) Cost of Goods Available 147,000
(-) Cost of Goods Sold (120,000 × 33.3333%) 40,000
(=) Cost of Ending Inventory 107,000

Gross Profit on Cost

Gross Profit on Retail =
100% + Gros Profit on Cost

50%
Gross Profit on Retail = = 33.333%
100% + 50%

The Amount of the theft loss = 107,000 – 60,000 = 47,000

2
Q4 Pinkel Company uses the LCNRV method, on an individual-item basis, in pricing its
inventory items. The inventory at December 31, 2011, consists of products D and E,
Relavant per-unit data for these products appear below.
Item Item
D E
Estimated selling price €180 €165
Cost 110 120
Cost to complete 45 45
Selling costs 15 27

Solution

Individual
Inventory Items Cost NRV
Items
Item D $ 110 $ 120 110
Item E 120 93 93
203
Net Realizable Value for Item D = 180 – 45 – 15 = 120

Net Realizable Value for Item E = 165 – 45 – 27 = 93