Question

QUESTION 4: 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

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.

Answer 1

Answer is given below with working notes

Weighted Average $2,761.11 | $913.89 Cost of Goods sold Ending Inventory b) Credit Debit $36.56 Account title Cost of Goods sold To Inventory Account (To record inventory difference) $36.56 If company had not recorded the shortage Closing inventory would have been overstated and gross profit and net profit would have been higher Due to net profit higher Retained earnings balance would have been over stated in Balance Sheet Also closing inventory balance in balance sheet should have been over stated Weighted Average method using Perpetual Inventory system Purchase Unit Total Quantity Cost Cost April 1 Opening stock Cost of Goods sold Unit Total Quantity Cost Cost April 6 Purchase 15 $45 $675 45 ca | 35 $48.33 $1,691.67 April 9 Sale April 14 Purchase Inventory on Hand Unit Total Quantity Cost Cost 30 $50.00 $1,500.00 30 $50.00 $1,500.00 15 $45.00 $675.00 $48.33 $2,175.00 10 $48.33 $483.33 10 $48.33 $483.33 20 $40.00 $800.00 $42.78 $1,283.33 $42.78 $213.89 $42.78 $213.89 20 $35.00 $700.00 25 $36.56 $913.89 20 $40 $800 25 $42.78 $1,069.44 April 20 Sale April 28 Purchase 20 $35 $700 5 April 30 Closing balance $2,761.11 Opening stock Add: Purchase $1,500.00 $2,175.00 $3,675.00 $913.89 $2,761.11 Less: Closing stock Cost of Goods sold