Financial Accounting Connect Access Card
Financial Accounting Connect Access Card
5th Edition
ISBN: 9781260159622
Author: J. David Spiceland
Publisher: Mcgraw-Hill
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Chapter 6, Problem 6PA
To determine

Record the transactions of Company B, assuming that it uses a FIFO perpetual inventory system to maintain its inventory records.

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.

October 4: Purchased 130 units at the rate of $50 each on account:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

October 4Inventory 6,500 
Accounts Payable  6,500
 (To record the purchase of inventories on account)   

Table (1)

  • Inventory is an asset and increased by $6,500. Therefore, debit the inventory account with $6,500.
  • Accounts payable is a liability and increased by $6,500. Therefore, credit the accounts payable account with $6,500.

October 5: Paid a freight charge of $600:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

October 5Inventory 600 
Cash  600
 (To record the payment of freight charge)   

Table (2)

  • Inventory is an asset and increased by $600. Therefore, debit the merchandised inventory account with $600.
  • Cash is an asset and decreased by $600. Therefore, credit the cash account with $600.

October 9: Inventories 10 units returned to suppliers:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

October 9Accounts Payable 500 
Inventory  500
 (To record the purchase return to the supplier)   

Table (3)

Working Note:

Value of inventory returned=Number of units returned×Rate per unit=10 units×$50=$500

  • Accounts Payable is liability and decreased by $500. Therefore, debit the accounts payable account with $500.
  • Inventory is an asset and decreased by $500. Therefore, credit the merchandised inventory account with $500.

October 12: Company D paid full amount due:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

October 12Accounts Payable 6,000 
Inventory  120
Cash  5,880
 (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]=($6,500$500)×2%=$120 (3)

Compute the amount due to the supplier:

Compute the accounts payable:

Invoice price = $6,500 (1)

Purchase return = $500 (2)

Accounts payable=(Invoice price Purchase return) =$6,500$500=$6,000 (4)

Compute the total amount due to the suppliers:

Accounts receivables = $12,800(4)

Purchase discount = $128 (3)

Amount due to the suppliers=(Accounts Receviables Purchase discount)=$6,000$120=$5,880 (5)

  • Accounts Payable is a liability and decreased by $6,000. Therefore, debit the accounts payable account with $6,000.
  • Merchandised inventory is an asset and decreased by $120. Therefore, credit the merchandised inventory account with $120.
  • Cash is an asset and decreased by $5,880. Therefore, credit cash account with $5,880.

October 15: Sold 160 units on account:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

October 15Accounts Receivable 12,800 
Sales Revenue  12,800
 (To record the sale of inventory)   

Table (5)

  • Accounts Receivable is an asset account and increased by $12,800. Therefore, debit the accounts Receivable account with $12,800.
  • Sales revenue is an equity account and increased by $12,800. Therefore, credit the sales revenue account with $12,800.
DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

October 15Cost of Goods Sold 8,440 
Inventory  8,440
 (To record the cost of goods sold)   

Table (6)

Working Note:

Cost of goods sold:

Cost of goods sold=[(Total number of units before October 4×Cost per unit)+(Total number of units after October 4×Cost per unit)]=[(50units×$50)+(110units×$54)]=$250+$5,940=$8,440

  • 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 $8,440.
  • Inventory is an asset and decreased by $8,440. Therefore, credit the inventory account with $8,440.

October 19: Received full payment from customers on account:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

October 19Cash 12,800 
Accounts receivable  12,800
 (To record the full payment received from the customers on account)   

Table (7)

  • Cash is an asset account and it is increased by $12,800. Therefore, debit the cash account with $12,800.
  • Accounts receivable is an asset account and it is decreased by $12,800. Therefore, credit the accounts receivable account with $12,800.

October 20: Purchased 100 units at the rate of $70 each on account:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

October 20Inventory 7,000 
Accounts Payable  7,000
 (To record the purchase of inventories on account)   

Table (8)

  • Inventory is an asset and increased by $7,000. Therefore, debit the inventory account with $7,000.
  • Accounts payable is a liability and increased by $7,000. Therefore, credit the accounts payable account with $7,000.

October 22: Sold 160 units:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

October 22Cash 8,000 
Sales Revenue  8,000
 (To record the sale of inventory)   

Table (9)

  • Cash is an asset account and increased by $8,000. Therefore, debit the cash account with $8,000.
  • Sales revenue is an equity account and increased by $8,000. Therefore, credit the sales revenue account with $8,000.
DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

October 22Cost of Goods Sold 6,840 
Inventory  6,840
 (To record the cost of goods sold)   

Table (10)

Working Note:

Cost of goods sold:

Cost of goods sold=[(Total number of units remaining after October 15 sale×Cost per unit)+(Total number of units on October 20 purchase×Cost per unit)]=[(10units×$54)+(90units×$70)]=$540+$6,300=$6,840

  • Cost of goods sold is an expense and has increased, which has decreased the equity by $6,840. Therefore, debit cost of goods sold account with $6,840.
  • Inventory is an asset and decreased by $6,840. Therefore, credit the inventory account with $6,840.

2.

To determine

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

2.

Expert Solution
Check Mark

Explanation of Solution

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

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

October 31Cost of Goods Sold 350 
Inventory  350
 (To record the adjustment for lower of cost and net realizable value)   

Table (11)

  • Cost of goods sold is an expense and has increased, which has decreased the equity by $6,840. Therefore, debit cost of goods sold account with $6,840.
  • Inventory is an asset and decreased by $6,840. Therefore, credit the inventory account with $6,840.

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 [(100units90units)×$70]  $700 whereas the net realizable value of ending inventory [(100units90units)×$35] is $350. Hence, the net realizable value of $350 which is the lesser amount is the amount to which the ending inventory is to be adjusted to.

3.

To determine

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

3.

Expert Solution
Check Mark

Explanation of Solution

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

Company B
Multi-step Income Statement (Partial)
For the month of October
Particulars$
Net sales20,800
Less: Cost of goods sold15,630
Gross Profit5,170

Table (12)

Cost of goods sold=(Cost of units sold+Write down to net realizable value)=($8,440+$6,840)+$350=($15,280)+$350=$15,630

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Chapter 6 Solutions

Financial Accounting Connect Access Card

Ch. 6 - 11. Maxwell Corporation has the following...Ch. 6 - Prob. 12SSQCh. 6 - Prob. 13SSQCh. 6 - Prob. 14SSQCh. 6 - Prob. 15SSQCh. 6 - Prob. 1AECh. 6 - Prob. 2AECh. 6 - Prob. 1RQCh. 6 - Prob. 2RQCh. 6 - Prob. 3RQCh. 6 - Prob. 4RQCh. 6 - Prob. 5RQCh. 6 - 6. What is a multiple-step income statement? What...Ch. 6 - Prob. 7RQCh. 6 - Prob. 8RQCh. 6 - Prob. 9RQCh. 6 - Prob. 10RQCh. 6 - Prob. 11RQCh. 6 - 12. Explain how LIFO generally results in lower...Ch. 6 - Prob. 13RQCh. 6 - Prob. 14RQCh. 6 - Prob. 15RQCh. 6 - Prob. 16RQCh. 6 - Prob. 17RQCh. 6 - Prob. 18RQCh. 6 - Prob. 19RQCh. 6 - Prob. 20RQCh. 6 - Prob. 21RQCh. 6 - Prob. 22RQCh. 6 - Prob. 23RQCh. 6 - Prob. 24RQCh. 6 - Prob. 1BECh. 6 - Prob. 2BECh. 6 - Prob. 3BECh. 6 - Prob. 4BECh. 6 - Prob. 5BECh. 6 - Prob. 6BECh. 6 - Prob. 7BECh. 6 - Prob. 8BECh. 6 - Prob. 9BECh. 6 - Prob. 10BECh. 6 - Prob. 11BECh. 6 - Prob. 12BECh. 6 - Prob. 13BECh. 6 - Prob. 14BECh. 6 - Prob. 15BECh. 6 - Prob. 16BECh. 6 - BE6-17 Refer to the information in BE6-10, but now...Ch. 6 - Prob. 18BECh. 6 - Prob. 19BECh. 6 - BE6–20 Refer to the information in BE6–13, but now...Ch. 6 - Prob. 21BECh. 6 - Prob. 22BECh. 6 - Prob. 1ECh. 6 - Prob. 2ECh. 6 - Prepare a multiple-step income statement and...Ch. 6 - Prob. 4ECh. 6 - Prob. 5ECh. 6 - E6-6 Bingerton Industries began the year with...Ch. 6 - Prob. 7ECh. 6 - Prob. 8ECh. 6 - Prob. 9ECh. 6 - Prob. 10ECh. 6 - Prob. 11ECh. 6 - Prob. 12ECh. 6 - Calculate inventory using lower of cost and net...Ch. 6 - Calculate inventory using lower of cost and net...Ch. 6 - Prob. 15ECh. 6 - Prob. 16ECh. 6 - Prob. 17ECh. 6 - Prob. 18ECh. 6 - Prob. 19ECh. 6 - Prob. 20ECh. 6 - Prob. 21ECh. 6 - Prob. 1PACh. 6 - Prob. 2PACh. 6 - Prob. 3PACh. 6 - Prob. 4PACh. 6 - Prob. 5PACh. 6 - Prob. 6PACh. 6 - Prepare a multiple-step Income statement and...Ch. 6 - P6-8A Wawa Food Markets is a convenience store...Ch. 6 - Prob. 9PACh. 6 - Correct inventory Understatement and calculate...Ch. 6 - Prob. 1PBCh. 6 - Prob. 2PBCh. 6 - Prob. 3PBCh. 6 - Prob. 4PBCh. 6 - Prob. 5PBCh. 6 - Prob. 6PBCh. 6 - Prob. 7PBCh. 6 - Prob. 8PBCh. 6 - Prob. 9PBCh. 6 - Prob. 10PBCh. 6 - Prob. 1APCh. 6 - American Eagle Outfitters, Inc. AP6-2 Financial...Ch. 6 - Prob. 3APCh. 6 - Prob. 4APCh. 6 - Ethics AP6-5 Horizon Corporation manufactures...Ch. 6 - Prob. 6APCh. 6 - Prob. 7APCh. 6 - Prob. 8AP
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