Because Natalie has had such a successful first few months, she is considering o
ID: 2434517 • Letter: B
Question
Because Natalie has had such a successful first few months, she is consideringother opportunities to develop her business. One opportunity is to become the exclusive
distributor of a line of fine European mixers. The current cost of a mixer is approximately
$575, and Natalie would sell each one for $1,150. Natalie comes to you for advice on
how to account for these mixers. Each appliance has a serial number and can be easily
identified.
Natalie asks you the following questions.
1. “Would you consider these mixers to be inventory? Or, should they be classified as
supplies or equipment?”
2. “I’ve learned a little about keeping track of inventory using both the perpetual and the
periodic systems of accounting for inventory. Which system do you think is better?
Which one would you recommend for the type of inventory that I want to sell?”
3. “How often do I need to count inventory if I maintain it using the perpetual system?
Do I need to count inventory at all?”
In the end, Natalie decides to use the perpetual method of accounting for inventory,
and the following transactions happen during the month of January.
Jan. 4 She buys five deluxe mixers on account from Kzinski Supply Co. for
$2,875, terms n/30.
6 She pays $100 freight on the January 4 purchase.
7 Natalie returns one of the mixers to Kzinski because it was damaged during
shipping. Kzinski issues Cookie Creations credit for the cost of the mixer
plus $20 for the cost of freight that was paid on January 6 for one mixer.
8 She collects the amount due from the neighborhood community center
that was accrued at the end of December 2009.
12 She sells three deluxe mixers on account for $3,450, FOB destination,
terms n/30. The mixers cost $595 each (including freight).
13 Natalie pays her cell phone bill previously accrued in the December
adjusting journal entries.
14 She pays $75 of delivery charges for the three mixers that were sold on
January 12.
14 She buys four deluxe mixers on account from Kzinski Supply Co. for
$2,300, terms n/30.
17 Natalie is concerned that there is not enough cash available to pay for all
of the mixers purchased. She issues additional common stock for $1,000.
18 She pays $80 freight on the January 14 purchase.
20 She sells two deluxe mixers for $2,300 cash.
28 Natalie issues a check to her assistant. Her assistant worked 20 hours in
January and is also paid for amounts owing at December 31, 2009. Recall
that Natalie’s assistant earns $8 an hour.
28 Natalie collects amounts due from customers in the January 12 transaction.
31 She pays Kzinski all amounts due.
31 Cash dividends of $750 are paid.
Explanation / Answer
Since these mixers are meant to sold ultimately, they should be classified as "inventory". The choice between Perpetual and Periodic Inventory system ultimately depends upon the size of the business. Perpetual Inventory keeps inventory records up to date. Inventory definitely needs to be counted at least once a year. Here I assume , you need journal entries for the following transactions Inventory 2875 Accounts Payable 2875 Inventory 100 Cash 100 Accounts Payable 575 Cash 20 Inventory 595 The journal entry would look something like this Cash Accounts Receivable Fill in the required amount in the gaps Accounts Receivable 3450 Sales 3450 Cost Of Goods Sold 1785 Inventory 1785 Telephone Charges Payable Cash (please fill in the required amounts ) Delivery Expenses 75 Cash 75 Inventory 2300 Cash 2300 Cash 1000 Cash 1000 Delivery Expenses 80 Cash 80 Cash 2300 Sales 2300 Also the foll entry will be passed: Cost Of Goods Sold Inventory Wages 160 Cash 160 Cash 3450 Accounts Receivable 3450 Accounts Payable 2300 Cash 2300 Dividends Payable 750 Cash 750