Financial accounting
Financial accounting
3rd Edition
ISBN: 9780077506902
Author: David J Spieceland Wayne Thomas Don Herrmann
Publisher: Mcgraw-Hill
bartleby

Concept explainers

bartleby

Videos

Question
Book Icon
Chapter 6, Problem 6.6BP

1.

To determine

To Record: The transactions of Incorporation Y, assuming that it uses a FIFO perpetual inventory system to maintain its inventory records.

1.

Expert Solution
Check Mark

Explanation of Solution

Perpetual Inventory System:

Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases, and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time.

First-in First-Out method (FIFO): Under FIFO method the cost of first acquired items is assigned to sales first. The value of the closing stock includes the cost of recently acquired item.

November 2: Purchased 90 units at the rate of $100 each on account:

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 2 Inventory 9,000
Accounts Payable 9,000
(To record the purchase of inventories on account)

Table (1)

  • Inventory is an asset and increased by $9,000. Therefore, debit the inventory account with $9,000.
  • Accounts payable is a liability and increased by $9,000. Therefore, credit the accounts payable account with $9,000.

November 3: Paid a freight charge of $231:

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 3 Inventory 231
Cash 231
(To record the payment of freight charge)

Table (2)

  • Inventory is an asset and increased by $231. Therefore, debit the merchandised inventory account with $231.
  • Cash is an asset and decreased by $231. Therefore, credit the cash account with $231.

November 9: Inventories 13 units returned to suppliers:

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 9 Accounts Payable 1,300
Inventory 1,300
(To record the purchase return to the supplier)

Table (3)

Working Note:

Value of inventory returned=Number of units returned×Rate per unit=13 units×$100=$1,300

  • Accounts Payable is liability and decreased by $1,300. Therefore, debit the accounts payable account with $1,300.
  • Inventory is an asset and decreased by $1,300. Therefore, credit the merchandised inventory account with $1,300.

November 11: Company T paid full amount due:

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 11 Accounts Payable 7,700
Inventory 231
Cash 7,469
(To record the payment made to the supplier)

Table (4)

Working Note:

Compute the amount of purchase discount:

Dicount Amount = [(Invoice PricePurchase Return) × Rate of Discount]=($9,000$1,300)×2%=$231 (3)

Compute the amount due to the supplier:

Compute the accounts payable:

Invoice price = $9,000 (1)

Purchase return = $1,300 (2)

Accounts payable=(Invoice price Purchase return) =$9,000$1,300=$7,700 (4)

Compute the total amount due to the suppliers:

Accounts receivables = $7,700(4)

Purchase discount = $231 (3)

Amount due to the suppliers=(Accounts Receviables Purchase discount)=$7,700$231=$7,469 (5)

  • Accounts Payable is a liability and decreased by $7,700. Therefore, debit the accounts payable account with $7,700.
  • Merchandised inventory is an asset and decreased by $231. Therefore, credit the merchandised inventory account with $231.
  • Cash is an asset and decreased by $7,469. Therefore, credit cash account with $7,469.

November 16: Sold 100 units on account:

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 16 Accounts Receivable 14,000
Sales Revenue 14,000
(To record the sale of inventory)

Table (5)

  • Accounts Receivable is an asset account and increased by $14,000. Therefore, debit the accounts Receivable account with $14,000.
  • Sales revenue is an equity account and increased by $14,000. Therefore, credit the sales revenue account with $14,000.
Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 16 Cost of Goods Sold 9,640
Inventory 9,640
(To record the cost of goods sold)

Table (6)

Working Note:

Cost of goods sold:

Cost of goods sold=[(Total number of units before November 2×Cost per unit)+(Total number of units after November 2×Cost per unit)]=[(60units×$94)+(100units×$40)]=$9,640

  • Cost of goods sold is an expense and has increased, which has decreased the equity by $8,440. Therefore, debit cost of goods sold account with $9,640.
  • Inventory is an asset and decreased by $8,440. Therefore, credit the inventory account with $9,640.

November 20: Received full payment from customers on account:

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 19 Cash 14,000
Accounts receivable 14,000
(To record the full payment received from the customers on account)

Table (7)

  • Cash is an asset account and it is increased by $14,000. Therefore, debit the cash account with $14,000.
  • Accounts receivable is an asset account and it is decreased by $14,000. Therefore, credit the accounts receivable account with $14,000.

November 21: Purchased 70 units at the rate of $104 each on account:

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 21 Inventory 7,280
Accounts Payable 7,280
(To record the purchase of inventories on account)

Table (8)

  • Inventory is an asset and increased by $7,280. Therefore, debit the inventory account with $7,280.
  • Accounts payable is a liability and increased by $7,280. Therefore, credit the accounts payable account with $7,280.

November 24: Sold 90 units:

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 24 Cash 12,600
Sales Revenue 12,600
(To record the sale of inventory)

Table (9)

  • Cash is an asset account and increased by $12,600. Therefore, debit the cash account with $12,600.
  • Sales revenue is an equity account and increased by $12,600. Therefore, credit the sales revenue account with $12,600.
Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 24 Cost of Goods Sold 9,212
Inventory 9,212
(To record the cost of goods sold)

Table (10)

Working Note:

Cost of goods sold:

Cost of goods sold=[(Total number of units remainingafter November 16 sale×Cost per unit)+(Total number of units onNovember 20 purchase×Cost per unit)]=[(37units×$100)+(53units×$104)]=$9,212

  • Cost of goods sold is an expense and has increased, which has decreased the equity by $9,212. Therefore, debit cost of goods sold account with $9,212.
  • Inventory is an asset and decreased by $9,212. Therefore, credit the inventory account with $9,212.

2.

To determine

To Record: The transactions of Incorporation Y, assuming that it uses a LIFO perpetual inventory system to maintain its inventory records.

2.

Expert Solution
Check Mark

Explanation of Solution

Record the necessary adjustment for lower of cost and net realizable value.

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 30 Cost of Goods Sold 170
Inventory 170
(To record the adjustment for lower of cost and net realizable value)

Table (11)

  • Cost of goods sold is an expense and increased which has decreased the equity by $170. Therefore, debit cost of goods sold account with $170.
  • Merchandised inventory is an asset and decreased by $170. Therefore, credit the merchandised inventory account with $170.

Working note:

Calculation of Cost of Ending Inventory
Details Number of Units Rate per Unit ($) Total Cost ($)
November 21 17 104 1,768
Ending Inventory 17 1,768

Table (12)

The ending inventory is adjusted at the cost of the inventory or net realizable value whichever is less. The cost of the FIFO ending inventory is (17Units×$104) $1,768 whereas the net realizable value of ending inventory (17Units×$94) is $1,598. Hence, the net realizable value of $170 which is the lesser amount is the amount to which the ending inventory is to be adjusted to.

3.

To determine

To Record: Any necessary adjustment for lower of cost and net realizable value.

3.

Expert Solution
Check Mark

Explanation of Solution

Record the necessary adjustment for lower of cost and net realizable value.

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

November 30 Cost of Goods Sold 221
Inventory 221
(To record the adjustment for lower of cost and net realizable value)

Table (11)

  • Cost of goods sold is an expense and increased which has decreased the equity by $221. Therefore, debit cost of goods sold account with $221.
  • Merchandised inventory is an asset and decreased by $221. Therefore, credit the merchandised inventory account with $221.

Working note:

Calculation of Cost of Ending Inventory
Details Number of Units Rate per Unit ($) Total Cost ($)
November 21 17 104 1,768
Ending Inventory 17 1,768

Table (12)

The ending inventory is adjusted at the cost of the inventory or net realizable value whichever is less. The cost of the FIFO ending inventory is (17Units×$104) $1,768 whereas the net realizable value of ending inventory (17Units×$81) is $1,377. Hence, the net realizable value of $221 which is the lesser amount is the amount to which the ending inventory is to be adjusted to.

4.

To determine

To Prepare: The top section of the multiple-step income statement through gross profit for the month of November after the adjustment for lower of cost and net realizable value.

4.

Expert Solution
Check Mark

Explanation of Solution

Prepare the top section of the multiple-step income statement through gross profit for the month of November after the adjustment for lower of cost and net realizable value.

Incorporation Y
Multi-step Income Statement (Partial)
For the month of November
Particulars $
Net sales 26,600
Less: Cost of goods sold 19,243
Gross Profit 7,357

Table (12)

Cost of goods sold=(Cost of units sold+Write down to net realizable value)=($9,640+$9,212+170)+$221=($18,852)+$221=$19,243

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 6 Solutions

Financial accounting

Ch. 6 - Prob. 11RQCh. 6 - 12.Explain how LIFO generally results in lower...Ch. 6 - Prob. 13RQCh. 6 - Explain how freight charges, purchase returns, and...Ch. 6 - Prob. 15RQCh. 6 - Prob. 16RQCh. 6 - Prob. 17RQCh. 6 - Prob. 18RQCh. 6 - Prob. 19RQCh. 6 - How is gross profit calculated? What is the gross...Ch. 6 - 21.Explain how the sale of inventory on account is...Ch. 6 - Prob. 22RQCh. 6 - Prob. 23RQCh. 6 - Prob. 24RQCh. 6 - Prob. 6.1BECh. 6 - Prob. 6.2BECh. 6 - Calculate cost of goods sold (LO62) At the...Ch. 6 - Prob. 6.4BECh. 6 - Calculate ending inventory and cost of goods sold...Ch. 6 - Calculate ending inventory and cost of goods sold...Ch. 6 - Calculate ending inventory and cost of goods sold...Ch. 6 - Prob. 6.8BECh. 6 - Identify financial statement effects of FIFO and...Ch. 6 - Prob. 6.10BECh. 6 - Prob. 6.11BECh. 6 - Prob. 6.12BECh. 6 - Prob. 6.13BECh. 6 - Prob. 6.14BECh. 6 - Prob. 6.15BECh. 6 - Prob. 6.16BECh. 6 - Prob. 6.17BECh. 6 - Prob. 6.18BECh. 6 - Prob. 6.19BECh. 6 - Prob. 6.20BECh. 6 - Prob. 6.21BECh. 6 - Prob. 6.22BECh. 6 - Calculate cost of goods sold (LO62) Russell Retail...Ch. 6 - Prob. 6.2ECh. 6 - Prob. 6.3ECh. 6 - Calculate inventory amounts when costs are rising...Ch. 6 - Calculate inventory amounts when costs are...Ch. 6 - Record Inventory transactions using o perpetual...Ch. 6 - Record inventory purchase and purchase return...Ch. 6 - Prob. 6.8ECh. 6 - Prob. 6.9ECh. 6 - Prob. 6.10ECh. 6 - Record transactions using a perpetual system...Ch. 6 - Record transactions using a perpetual system...Ch. 6 - Prob. 6.13ECh. 6 - Prob. 6.14ECh. 6 - Calculate cost of goods sold, the inventory...Ch. 6 - Prob. 6.16ECh. 6 - Prob. 6.17ECh. 6 - Prob. 6.18ECh. 6 - Record inventory purchases and sales using a...Ch. 6 - Prob. 6.20ECh. 6 - Calculate ending inventory and cost of goods sold...Ch. 6 - Prob. 6.2APCh. 6 - Prob. 6.3APCh. 6 - Prob. 6.4APCh. 6 - Prob. 6.5APCh. 6 - Prob. 6.6APCh. 6 - Prob. 6.7APCh. 6 - Prob. 6.8APCh. 6 - Record transactions and prepare a partial income...Ch. 6 - Prob. 6.10APCh. 6 - Calculate ending inventory and cost of goods sold...Ch. 6 - Prob. 6.2BPCh. 6 - Prob. 6.3BPCh. 6 - Prob. 6.4BPCh. 6 - Prob. 6.5BPCh. 6 - Prob. 6.6BPCh. 6 - Prob. 6.7BPCh. 6 - Use the inventory turnover retio end gross profit...Ch. 6 - Record transactions and prepare a partial income...Ch. 6 - Prob. 6.10BPCh. 6 - Prob. 6.1APCPCh. 6 - Prob. 6.2APFACh. 6 - Prob. 6.3APFACh. 6 - Prob. 6.4APCACh. 6 - Prob. 6.5APECh. 6 - Prob. 6.6APIRCh. 6 - Written Communication You have just been hired as...Ch. 6 - Prob. 6.8APEM
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
Chapter 6 Merchandise Inventory; Author: Vicki Stewart;https://www.youtube.com/watch?v=DnrcQLD2yKU;License: Standard YouTube License, CC-BY
Accounting for Merchandising Operations Recording Purchases of Merchandise; Author: Socrat Ghadban;https://www.youtube.com/watch?v=iQp5UoYpG20;License: Standard Youtube License