PROBLEM 5-4A

(a)
General Journal
Date
Apr.

 4

 6

 8

10

11

13

J1

Account Titles and Explanation

Ref.

Debit

Credit

Merchandise Inventory..................................................

120

  840

Accounts Payable...............................................

201

Merchandise Inventory..................................................

120

Cash......................................................................

101

Accounts Receivable.....................................................

112

Sales.....................................................................

401

Cost of Goods Sold.......................................................

505

Merchandise Inventory.......................................

120

Accounts Payable..........................................................

201

Merchandise Inventory.......................................

120

Merchandise Inventory..................................................

120

Cash......................................................................

101

Accounts Payable ($840 – $40)....................................

201

Merchandise Inventory.......................................

120

   16

Cash......................................................................

101

  784

Merchandise Inventory..................................................

120

Accounts Payable...............................................

201

  840
   40
   40
1,150
1,150
  790
  790
   40
   40
  420
  420
 800

  ($800 X 2%)

14

15

17

18

Cash

101
Merchandise Inventory.......................................

120

Merchandise Inventory..................................................

120

Cash......................................................................

101

Accounts Receivable.....................................................

112

Sales.....................................................................

401

Cost of Goods Sold.......................................................

505

  900
  900
   50
   50
   30
   30
  810
  810
  530

......   530 120 PROBLEM 5-4A (Continued) General Journal Date Apr...... 412 Accounts Receivable................... Debit Credit Π 2........................................................276 1... 112 Ref... 101 Date Apr.....................500 6 J1  40 2...............306  30 500 Date Explanation 1.............460 ................................. 660 112 660 (b) Cash No.............. 112 900   ($900 X 3%) 27 30 Cash  30  30 101 Accounts Receivable...256 15 J1 17 J1 20 J1 21 J1 30 J1 50 1.......... 112 500 Accounts Payable.......... Balance No.. 120  27 Cash............... Explanation 1 Balance Ref.........776 873 660 903 1....................... 20 21 J1 Account Titles and Explanation Ref...... 101 873 Sales Returns and Allowances............ 201 Merchandise Inventory.............Merchandise Inventory...........960 20 J1 500 Balance 1......................563 Accounts Receivable Apr...150 18 J1   810 1............................460 11 J1 420 2........................150 1...040 13 J1 784 1. Debit Credit 8 J1 1.... Cash 101 Debit Credit 500 Accounts Receivable..

034 Common Stock Apr. Explanation  1 Balance No.170    16 900 Date Explanation    50  30 No. Debit Credit Π Balance 4.054 Accounts Payable Apr.154 3. 311 Ref. Debit Credit Balance .004 3.477 420 2.200 Sales Date 3.27 J1  30 1. 2.700  4 J1 840 2.504 21 J1    27 2.750 11 J1 13 J1 14 J1 15 J1 17 J1 18 J1   530 2.540  6 J1  40 2.430 30 J1 660   770 PROBLEM 5-4A (Continued) Merchandise Inventory Date Apr. 201 Ref. 120 Ref. Balance No. Debit Credit Balance   840   840  4 J1 10 J1 40   800 13 J1 800     0 14 J1 21 J1 Date   900 Explanation  1 Balance  900     0 900 No.580  8 J1   790 1. Debit Credit Π 1.790 10 J1    40 1. 401 Explanation Ref.

...........160 $6.................................. Explanation 27 No....................................... Debit Credit Balance  30 J1    30 Cost of Goods Sold Date Apr... $1.320 HAFNER’S TENNIS SHOP Trial Balance April 30.......... 2008 Debit Cash................563 Accounts Receivable........... Debit Credit Balance  8 J1 790   790 18 J1 530 1............................................................Apr......................150 18 J1   810 1............................... 412 Ref.......................320 $6...............  1........     30 Cost of Goods Sold..    770 Merchandise Inventory.......477 Credit Common Stock............................................. $4.............. 505 Ref...150 1............................................. (c) Explanation No........................  2.........................................................960 PROBLEM 5-4A (Continued) Sales Returns and Allowances Date Apr............160 ... 8 J1 1............................960 Sales Returns and Allowances...200 Sales................................................................................................ 1......

............ 30 Cash.......... 10 Accounts Payable............................................................. 21 Accounts Payable................... 600 12 .......................................................................................................................................................... 40 Purchase Returns and Allowances........................................................000 Sales........................*PROBLEM 5-7A (a) General Journal Date Apr............................................................... 15 600   50 Cash   50 Purchase Returns and Allowances....................................................... 18 Accounts Receivable.....................................................000   500 Cash   500 Accounts Receivable...... 11 Purchases.................................................................................................... Debit 740 Accounts Payable.......................................................................................................................... 13 14 Accounts Payable ($740 – $40).............  8 Accounts Receivable...................... 600 Accounts Payable...................  6 Freight-in......................................... 60   900   900 Sales.................................................................................................................................................................................................................................. 300   700 Purchase Discounts ($700 X 3%)............................................................................... 20 Credit 1...... 40 300 Cash........................................... 30 1........................................ Purchase Discounts ($600 X 2%)..................... 740 60 Cash.................................................................................................................................................................................................. Account Titles and Explanation 4 Purchases....................... 17 Freight-in............   21 Cash.............................................................................................................................................................. 679 Purchases........................................

................. 1..................... 588 *PROBLEM 5-7A (Continued) Date Account Titles and Explanation  27 Apr..  30 Debit Sales Returns and Allowances................................. 4/15 4/20 4/30 2........................... 4. 33 Freight-in 4/6 4/17 60 30 4/30 Bal.......... Credit 30 30   500 Cash   500 Accounts Receivable......000 4/27 4/30 4/30 Bal.........893 4/6 4/11 4/13 4/17 4/21 Accounts Payable 60 300 679 30 588 4/10 4/13 4/21 40 4/4 700 4/14 600 4/30 Bal..900 Merchandise Inventory 4/1 Bal.............640 4/13 21 4/21 12 4/30 Bal... 0 Common Stock Accounts Receivable 4/8 4/18 740 600 500 30 500 4/1 Bal........... 900 4/20 1.. 30 Purchases 4/4 740 4/11 300 4/14 600 4/30 Bal............700 4/30 Bal............ (b) Cash 4/1 Bal.... 1............ 1..... 1...700 Purchase Discounts Sales Returns and Allowances 4/27 30 4/30 Bal............. 1....200 Sales 4/8 870 900 4/18 1.500 50 500 500 4/30 Bal..............000 4/30 Bal. Accounts Receivable.200 4/30 Bal... 90 ........Cash............... 4..

..............................................................................................................   870 Merchandise Inventory.....Purchase Returns and Allowances 4/10 4/15 40 50 4/30 Bal...893 Accounts Receivable................................................................................ Cost of goods purchased............................................................223 $6......... 1...... Net purchases Add: Freight-in.......................................................................223 VILLAGE TENNIS SHOP Income Statement (Partial) For the Month Ended April 30..................... 90 Purchase Discounts.................................... April 1...................... 30 Purchases....640 Purchase Returns and Allowances.....640 Less:Purchase returns and allowances Purchase discounts......900 Less: Sales returns and allowances.... 33 Freight-in.......700 Credit Common Stock.................................................. 90 $6......................................... 1............. Purchases ..................... 30  1............................... 2008 Sales revenues Sales.......................................  1................................... 90 33 123 1517 90 1..................................................... Cost of goods sold Inventory........ 90 *PROBLEM 5-7A (Continued) (c) VILLAGE TENNIS SHOP Trial Balance April 30.......................... $4...... $1.....................................................................607 ................................................................................ $1.....................................................................200 Sales.........................900 Sales Returns and Allowances................................................. $1...............................................................................700 $1.......................................870 Net sales ................ 2008 Debit Cash.

........................011 Gross profit ........... 1................. $ 859 .................................................................296 Cost of goods sold...... 3........... April 30. 2......307 Inventory..........................Cost of goods available for sale.........

000 8/12 Purchase 300 11 3.700 $19.100 $19.300 500 Cost of Goods Sold Cost of goods available for sale $5.200 2/20 Purchase 600 9 5.100 Cost of goods sold $15.200 .600 PROBLEM 6-3A (Continued) (b) LIFO (1) Ending Inventory (2) Unit Date Units Total Cost Cost Cost of goods available for sale 1/1 400 $8 $3.300 Less: Ending inventory 5.400 8/12 300 11 3.400 5/5 500 10 5.400 5/5 Purchase 500 10 5.200 2/20 100 9 900 500 Cost of Goods Sold $4.000 1.300 Less: Ending inventory 4.500 $13.300 FIFO (1) Ending Inventory (2) Unit Total Cost Date Units Cost 12/8 200 $12 $2.600 Proof of Cost of Goods Sold Unit Date Units Total Cost Cost 1/1 400 $ 8 $ 3.700 Cost of goods sold $13.000 (b) Total Cost $19.200 2/20 600 9 5.PROBLEM 6-3A (a) COST OF GOODS AVAILABLE FOR SALE Date Explanation Units 1/1 Beginning Inventory 400 $ 8 $ 3.400 Total Unit Cost 2.300 12/8 Purchase 200 12 2.

000 = $9.65 $4. $4. $14.500 1.100.825 $9.475 .000 2/20 500 9 4.300 5/5 500 10 5. (2) FIFO results in the lowest cost of goods sold.200 AVERAGE-COST (1) Ending Inventory (2) $19.Proof of Cost of Goods Sold Unit Date Units Total Cost Cost 12/8 200 $12 $ 2.300 ÷ 2. $13.65 Cost of Goods Sold Cost of goods available for sale Unit Cost Total Cost Less: Ending inventory Units 500 (c) $19.825 Cost of goods sold (1) LIFO results in the lowest inventory amount for the balance sheet.300 4.600.400 8/12 300 11 3.500 $15.

.......940 under LIFO and $36................50) + ( 5..........560 539...............500 Cost of goods sold....... 35.....000 @ $4..120 30..........000 35...500................................. (4) There will be $5......20) = $133......... 36... .............500 a 133.000 424............ 504............................ Ending inventory............................ (3) The FIFO method is most likely to approximate actual physical flow because the oldest goods are usually sold first to minimize spoilage and obsolescence.....000 @ $4..880 $ 79.............120 under FIFO.......... (2) The LIFO method produces the most meaningful net income because the costs of the most recent purchases are matched against sales.......... 2008 FIFO Sales .................000 @ $3............. $665....................940 Net income..................500 b 115...500 Operating expenses.. 539...............180 additional cash available under LIFO because income taxes are $30..................500 504.......500 Income tax expense (28%)..... 259...................50) + (20........00) = $115.............................................. 129...000 Income before income taxes..................................500 Gross profit.......000 Cost of goods sold Beginning inventory..........................000 Cost of goods purchased.000 110.................... 130..000 240.........000......000 130...... b (10...........000 @ $4........................................................................500 Cost of goods available for sale.............. 406.................000 LIFO $665.....000 a (25................. Condensed Income Statement For the Year Ended December 31.........PROBLEM 6-7A (a) UTLEY INC..... (b) Answers to questions: (1) The FIFO method produces the most meaningful inventory amount for the balance sheet because the units are costed at the most recent purchase prices.......................................................... $ 92.........

500 of the gross profit to replace the units used. whereas under FIFO. This method is most likely to approximate actual physical flow because the oldest goods are usually sold first to minimize spoilage and obsolescence. the company must reinvest $18.940 under LIFO and $36. After preparing the comparative condensed income statements for 2008 under FIFO and LIFO methods. we have found the following: The FIFO method produces the most meaningful inventory amount for the balance sheet because the units are costed at the most recent purchase prices.500 ($259.000 – $240.180 additional cash available under LIFO because income taxes are $30. . you have recovered the current replacement cost of the units ($424. has recovered the current replacement cost of the units ($424.120 under FIFO. This means that under FIFO the company must reinvest $18.500).500).500).000 – $240. it has only recovered the earlier costs ($406. Utley Inc. Under LIFO. The LIFO method produces the most meaningful net income because the costs of the most recent purchases are matched against sales.PROBLEM 6-7A (Continued) (5) The illusionary gross profit is $18. Sincerely.000).500 of the gross profit to replace the units sold. Under LIFO. This means that under FIFO. There will be $5. Answer in business letter form: Dear Utley Inc. There exists an illusionary gross profit of $18.500) whereas under FIFO you have only recovered the earlier costs ($406.500 or ($259.000).

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