Answers to Chapter 7 In-Class Exercises.pdf - Answers to Chapter 7 In-Class Exercises 1(a Perpetual FIFO – Econ Inc “Perpetual” suggests that COS

Answers to Chapter 7 In-Class Exercises.pdf - Answers to...

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1 Answers to Chapter 7 In-Class Exercises 1. (a) Perpetual + FIFO Econ Inc. “Perpetual” suggests that COS should be recorded immediately at every sale. “FIFO” means the oldest inventory should be sold first. Req 1. Journal entries: Date Activities Qty Selling/ Cost Price Journal Entry Jan 1 BI 500 $14 None. BI = 500×14 = 7,000 Mar 1 Sale 400 $30 Dr. Accounts receivable (400×30) 12,000 Cr. Sales 12,000 Dr. Cost of sales ? Cr. Inventory Before every sale, analyze inventory composition: Jan 1 batch: 500 [email protected]$14 FIFO The sold 400 units are entirely fulfilled by the oldest Jan 1 batch @$14. COS = 400×14 = 5,600 Apr 8 Sale return (return Mar 1 sale) 100 $30 Dr. Sales return (100×30) 3,000 Cr. Accounts receivable 3,000 Dr. Inventory Cr. Cost of sales ? Apply the unit cost in the related sale: COS (credit) = 100×14 = 1,400 May 1 Purchase 400 $15 Dr. Inventory (400×15) 6,000 Cr. Accounts payable 6,000 Oct 1 Sale 300 $25 Dr. Accounts receivable (300×25) 7,500 Cr. Sales 7,500 Dr. Cost of sales ? Cr. Inventory Before every sale, analyze inventory composition: Jan 1 batch: 500 400 sold + 100 returned = 200 [email protected]$14 May 1 batch: 400 [email protected]$15 FIFO The sold 300 units are first fulfilled by the oldest Jan 1 batch 200 [email protected]$14. Then the remaining 100 units are fulfilled by the May 1 batch @$15. COS = 200×14 + 100×15 = 4,300 Nov 5 Purchase 200 $13 Dr. Inventory (200×13) 2,600 Cr. Accounts payable 2,600 Now, we can calculate: Total sales = 12,000 (Mar 1) + 7,500 (Oct 1) = 19,500 Total sales return = 3,000 (Apr 8) Total COS = 5,600 (Mar 1) 1,400 (Apr 8 return) + 4,300 (Oct 1) = 8,500 Req. 2 Statement of earnings up to gross profit for 2018: Econ Inc. Statement of Earnings For the year ended Dec 31, 2018 Sales 19,500 Sales return 3,000 Net sales 16,500 Cost of sales 8,500 Gross profit 8,000
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