RE Version 3 revised.docx - Question 1 20 Marks Part1(2...

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Question 1 20 Marks P a r t1 ( 2 Marks) (a) Discuss how gross profit on sales in calculated for a retail entity. Why are sales returns and allowances and purchase returns and allowances recorded in contra accounts to sales and purchases respectively? Why is freight inwards added to purchases but freight outwards treated as an expense?
Review Exam, Spring 2016 Version 3 Page 1
Part 2 (18 Marks) The following information relates to the inventory of Smith Electrical Ltd, a company registered for GST. All unit prices below exclude GST. July 1 Beginning Inventory 8 @ $30 = $240 Aug. 14 Purchased 11 @ $38 = $418 Sept. 25 Sold 9 Jan. 8 Purchased 10 @ $40 = $400 March 3 Purchased 5 @ $42 = $210 April 13 Sold 11 June 10 Sold 3 Required A. Using a perpetual system and the moving average method, calculate the cost of the year-end inventory and the cost of sales. 8 Marks B. Using a periodic system and the FIFO method, determine the cost of the 11 items in inventory on 30 June, the cost of sales, and the cost of goods available for sale for the year. 10 Marks SOLUTION
Review Exam, Spring 2016 Version 3 Page 2
B. FIFO: Periodic Ending inventory: 5 units @ $42.00 $210.00 6 units @ $40.00 $240.00 11 units $450.00 Cost of sales = $1268 – $450 = $818 8 units @ $30.00 $240.00 11 units @ $38.00 $418.00 4 units @ $40.00 $160.00 23 units $818.00 Cost of goods available for sale: $240 + $418 + $400 + $210 = $1268 Review Exam, Spring 2016 Version 3 Page 3
Question 2 20 Marks

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