Need help with Accounting for Inventories questions: 1. Western Company normally
ID: 2543841 • Letter: N
Question
Need help with Accounting for Inventories questions:
1.
Western Company normally makes the journal entry for a purchase of inventory and recognition of the payable on receipt of a vendor invoice. On December 31 (year end) it receives an invoice for $1,000 from Far East Ltd. and records the purchase. However, the incoming shipment is actually still in transit (in mid Pacific) at year end and the sales terms were FOB destination. Western takes a physical count of inventory at the end of year as standard procedure. Western:
Choices a, b and c all represent correct statements
should reverse the purchase entry to correct the error
does not legally own the goods on December 31
should catch the error when it compares the count to the records (the book to physical adjustment
Choices a, b and c all represent incorrect statements
2.
Hammer Co. is in the business of buying hammers at wholesale prices and reselling them at retail prices. The following information for the month of February was collected by Hammer Co.'s Purchase and Sales departments:
If the company uses a FIFO cost flow assumption, what was the cost of the inventory on hand after the February 26th sale if a periodic inventory system and a perpetual inventory system was used?
Periodic System $2,200 Perpetual System $2,600
Periodic System $2,600 Perpetual System $2,200
None of the other alternatives are correct
Periodic System $2,600 Perpetual System $2,600
Periodic System $2,200 Perpetual System $1,950
3.
If a company uses the FIFO Method of valuing its inventory, this requires that:
It actually sells its oldest inventory first
It charges the costs associated with its oldest inventory to Cost of Sales first
It charges the costs associated with its most recently acquired inventory to Cost of Sales first
None of the above are correct statements
It actually sells its most recently acquired inventory first
4.
Freddy's Frogs sells inventory that had cost the company $1,800 for $2,500 whereby $2,000 is received in cash and the remainder is to be paid by the customer in 10 days (specific identification method is used). Which of the following is the correct journal entry to record the transaction if a perpetual inventory method is used by the company?
Dr. Cash $2000, Dr. A/R $500, Cr. Sales $2,500. Dr. Cost of goods sold $1,800, Cr. Inventory $1,800
None of the other alternatives are correct
Dr. cash $2,000. Dr. A/R $500, Cr. Sales $2,500
Dr. Cash $2000, Dr. A/R $500, Cr. Sales $2,500. Dr. Cost of goods sold $1,800, Cr. Purchases $1,800
Dr. Cash $2000, Dr. Loss on sale $500, Cr. Sales $2,500. Dr. Cost of goods sold $1,800, Cr. Purchases $1,800
Date Transactions Units Unit cost/sales price Feb 4 Beginning inventory 300 $15 9 Purchase 100 18 12 Sale 320 27 17 Purchase 150 20 26 Sale 100 30Explanation / Answer
1) Western Company normally makes the journal entry for a purchase of inventory and recognition of the payable on receipt of a vendor invoice. On December 31 (year end) it receives an invoice for $1,000 from Far East Ltd. and records the purchase. However, the incoming shipment is actually still in transit (in mid Pacific) at year end and the sales terms were FOB destination. Western takes a physical count of inventory at the end of year as standard procedure. Western
Solution: Choices a, b and c all represent correct statements
Explanation: All the options are applicable in the current situation
2) If the company uses a FIFO cost flow assumption, what was the cost of the inventory on hand after the February 26th sale if a periodic inventory system and a perpetual inventory system was used?
Solution: Periodic System $2,200 Perpetual System $1,950
Explanation: 550 -420 = 130 units
Periodic System $2,200 Perpetual System $1,950
3) If a company uses the FIFO Method of valuing its inventory, this requires that:
Solution: It charges the costs associated with its oldest inventory to Cost of Sales first
Explanation: The FIFO inventory method makes an assumption that costs for the earliest units purchased needs to be first to be charged to the cost of goods sold
4) Freddy's Frogs sells inventory that had cost the company $1,800 for $2,500 whereby $2,000 is received in cash and the remainder is to be paid by the customer in 10 days (specific identification method is used). Which of the following is the correct journal entry to record the transaction if a perpetual inventory method is used by the company?
Solution: Dr. Cash $2000, Dr. A/R $500, Cr. Sales $2,500. Dr. Cost of goods sold $1,800, Cr. Purchases $1,800
Explanation:
Dr. Cash $2000
Dr. A/R $500
Cr. Sales $2,500
Dr. Cost of goods sold $1,800
Cr. Purchases $1,800