Question

1.

Beginning inventory, purchases, and sales data for tennis rackets are as follows:

April	3		Inventory	21 units	@	$17
	11		Purchase	12 units	@	$17
	14		Sale	16 units
	21		Purchase	14 units	@	$19
	25		Sale	17 units

Complete the inventory cost card assuming the business maintains a perpetual inventory system and determine the cost of goods sold and ending inventory using LIFO.

	Purchases				Cost of Goods Sold				Inventory
Date	Qty.	Unit Cost	Total Cost		Qty.	Unit Cost	Total Cost		Qty.	Unit Cost	Total Cost
April 3										$	$
11		$	$							$	$
										$
14						$	$			$	$
						$
21		$	$							$	$
										$
25						$	$			$	$
						$
					Total Cost of goods sold		$		Ending inventory value		$

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2.

Journalize the following transactions using the direct write-off method of accounting for uncollectible receivables.

April 1	Sold merchandise on account to Jim Dobbs, $6,900. The cost of goods sold is $4,600.
June 10	Received payment for one-third of the receivable from Jim Dobbs and wrote off the remainder.
Oct. 11	Reinstated the account of Jim Dobbs and received cash in full payment.

If an amount box does not require an entry, leave it blank.

April 1
April 1
June 10
Oct. 11
Oct. 11

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3.

Equipment was acquired at the beginning of the year at a cost of $78,660. The equipment was depreciated using the straight-line method based upon an estimated useful life of 6 years and an estimated residual value of $7,920.

Required:

a.	What was the depreciation expense for the first year?
b.	Assuming the equipment was sold at the end of the second year for $59,486, determine the gain or loss on sale of the equipment.
c.	Journalize the entry to record the sale. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

Complete the inventory cost card assuming the business maintains a perpetual inventory system and determine the cost of goods sold and ending inventory using LIFO.

	Purchases				Cost of Goods Sold				Inventory
Date	Qty.	Unit Cost	Total Cost		Qty.	Unit Cost	Total Cost		Qty.	Unit Cost	Total Cost
April 3									21	$17	$357
11	12	$17	$204						21	$17	$357
									12	$17	204
14					12	$17	$204		17	$17	$289
					4	$17	68
21	14	$19	$266						17	$17	$289
									14	$19	266
25					14	$19	$266		14	$17	$238
					3	$17	51
					Total Cost of goods sold		$589		Ending inventory value		$238

2) Journal entry

If an amount box does not require an entry, leave it blank.

April 1	Account receivable	6900
	Sales revenue		6900
April 1	Cost of goods sold	4600
	Inventory		4600
June 10	Cash	2300
	Allowance for doubtful account	4600
	Account receivable		6900
Oct. 11	Account receivable	4600
	Allowance for doubtful account		4600
Oct 11	Cash	4600
	Account receivable		4600

3a) Depreciation expense = (78660-7920/6) = 11790

3b) Gain (loss) = 59486-(78660-11790-11790) = 4406

3c) Journal entry

Date	account and explanation	Debit	Credit
	Cash	59486
	Accumulated depreciation	23580
	Gain on sale of equipment		4406
	Equipment		78660