Question

P5-3A Presented here are selected transactions for Norlan Inc. during September of the current year. Norlan uses a perpetual inventory system.

Sept.   2	Purchased equipment on account for $65,000, terms n/30, FOB destination.
3	Freight charges of $950 were paid by the appropriate party on the September 2 purchase of equipment.
4	Purchased supplies for $4,000 cash.
6	Purchased inventory on account from Hillary Corp. at a cost of $65,000, terms 1/15, n/30, FOB shipping point.
7	Freight charges of $1,600 were paid by the appropriate party on the September 6 inventory purchase.
8	Returned damaged goods costing $5,000 that were originally purchased from Hillary on September 6. Received a credit on account.
9	Sold goods costing $15,000 to Fischer Limited for $20,000 on account, terms 2/10, n/30, FOB destination.
10	Freight charges of $375 were paid by the appropriate party on the September 9 sale of inventory.
17	Received the balance due from Fischer.
20	Paid Hillary the balance due.
21	Purchased inventory for $6,000 cash.
22	Sold inventory costing $20,000 to Kun-Tai Inc. for $27,000 on account, terms n/30, FOB shipping point.
23	Freight charges of $500 were paid by the appropriate party on the September 22 sale of inventory.
28	Kun-Tai returned goods sold for $10,000 that cost $7,500. The merchandise was restored to inventory.

Instructions

(a) Record the September transactions on Norlan’s books.

(b) Assume that Norlan did not take advantage of the 1% purchase discount offered by Hillary Corp. and paid Hillary on October 3 instead of September 20. Record the entry that Norlan would make on October 3 and determine the cost of missing this purchase discount to Norlan.

P5-12A Data for Norlan Inc. are presented in P5–3A.

Instructions

(a) Record the September transactions on Norlan’s books, assuming it uses a periodic inventory system instead of a perpetual inventory system.

(b) Assume that Norlan did not take advantage of the 1% purchase discount offered by Hillary Corp. and paid Hillary on October 3 instead of September 20. Record the entry that Norlan would make on October 3 and determine the cost of missing this purchase discount to Norlan.

P6-4A Sandoval Skateshop Ltd. reports the following inventory transactions for its skateboards for the month of April. The company uses a perpetual inventory system.

Date	Explanation	Units	Unit Cost	Total Cost
Apr. 1	Beginning inventory	30	$50	$1,500
6	Purchases	15	45	675
9	Sales	(35)
14	Purchases	20	40	800
20	Sales	(25)
28	Purchases	20	35	700

Instructions

(a) Determine the cost of goods sold and cost of ending inventory using FIFO.

(b) Assume that Sandoval wants to change to the average cost formula. What guidelines must it consider before making this change?

(c) If the company does change to the average cost formula and prices continue to fall, would you expect the cost of goods sold and ending inventory amounts to be higher or lower than these amounts when using FIFO?

P6-5A Information for Sandoval Skateshop Ltd. is presented in P6-4A. Use the same inventory data and assume that the company uses the perpetual inventory system.

Instructions

(a) Determine the cost of goods sold and cost of ending inventory using average cost. (Use unrounded numbers in your calculations but round to the nearest cent for presentation purposes in your answer.)

(b) When the company counted its inventory at the end of April, it counted only 24 skateboards on hand. What journal entry, if any, should the company make to record this shortage?

(c) If the company had not discovered this shortage, identify what accounts would be overstated or understated and by what amount. Ignore the effect of income taxes.

P6-9A Tascon Corporation sells coffee beans, which are sensitive to price fluctuations. The following inventory information is available for this product at December 31, 2018:

Coffee Bean	Units	Unit Cost	Net Realizable Value
Coffea arabica	13,000 bags	$5.60	$5.55
Coffea robusta	5,000 bags	3.40	3.50

(a) Calculate Tascon’s inventory at the lower of cost and net realizable value.

(b) Prepare any journal entry required to record the LCNRV, assuming that Tascon uses a perpetual inventory system.

(c) Explain whether Tascon should consider each type of coffee bean separately when determining the lower of cost and net realizable value. Identify an argument in support of both types of coffee beans being considered as part of one inventory grouping.

P6-13A Kane Ltd. had a beginning inventory on January 1 of 250 units of product SXL at a cost of $160 per unit. During the year, purchases were as follows:

	Units	Unit Cost	Total Cost
Mar. 15	700	$150	$105,000
July 20	500	145	72,500
Sept. 4	450	135	60,750
Dec.  2	100	125	12,500

Kane uses a periodic inventory system. At the end of the year, a physical inventory count determined that there were 200 units on hand.

Instructions

(a) Determine the cost of goods available for sale.

(b) Determine the cost of the ending inventory and the cost of the goods sold using (1) FIFO and (2) average cost. (Use unrounded numbers in your calculation of the average unit cost but round to the nearest cent for presentation purposes in your answer.)

Answer 1

P5-3A
(a)

Date	Account Titles	Debit	Credit
Sep-02	Equipment	$              65,000
	Accounts Payable		$            65,000
	(Equipment purchased on account)
Sep-03	Equipment	$                    950
	Cash		$                  950
	(Payment of freight on equipment)
Sep-04	Supplies	$                4,000
	Cash		$              4,000
	(Supplies purchased for cash)
Sep-06	Inventory	$              65,000
	Accounts Payable		$            65,000
	(Payment of inventory on account)
Sep-07	Inventory	$                1,600
	Cash		$              1,600
	(Paid freight in cash)
Sep-08	Accounts Payable	$                5,000
	Inventory		$              5,000
	(Returnd damaged goods)
Sep-09	Accounts Receivable	$              20,000
	Sales Revenue		$            20,000
	(Sales made on account)
	Cost of Goods Sold	$              15,000
	Inventory		$            15,000
	(Cost of goods sold recorded)
Sep-10	Delivery Expense	$                    375
	Cash		$                  375
	(Paid freight on FOB Destination sale)
Sep-17	Cash	$              19,600		=20000*98%
	Sales Discount	$                    400		=20000*2%
	Accounts receivable		$            20,000
	(Cash collected net of 2% discount)
Sep-20	Accounts Payable	$              60,000		=65000-5000
	Cash		$            59,400	=60000*99%
	Inventory		$                  600	=60000*1%
	(Paid net of 1% discount)
Sep-21	Inventory	$                6,000
	Cash		$              6,000
	(Purchased inventory for cash)
Sep-22	Accounts Receivable	$              27,000
	Sales Revenue		$            27,000
	(Sales made on account)
	Cost of Goods Sold	$              20,000
	Inventory		$            20,000
	(Cost of goods sold recorded)
Sep-23	No entry
Sep-28	Sales Returns and allowances	$              10,000
	Accounts receivable		$            10,000
	(Sales returns)
	Inventory	$                7,500
	Cost of Goods Sold		$              7,500
	(Inventory added back)

(b)

Date	Account Titles	Debit	Credit
Oct-03	Accounts Payable	$              60,000
	Cash		$            60,000

Purchase discount missing = $60000 x 1% = $600

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