Question

Luther Electronics sell a variety of gadgets including tablets. The business uses a perpetual inventory system and the LIFO method to account for inventory and began the third quarter of 2018 with merchandise inventory of 10 “PIXI 3G 7” tablets at a total cost of $134,200. During the quarter, the company completed the following transactions. July 8 Purchased 38 tablets at a total cost of $528,200. July 31 The sales for July were 18 tablets which yielded total sales revenue of $332,640. August 12 Owing to an increased demand for this product, 30 tablets were purchased on account at a cost of $13,905 each. In addition Luther paid $350 in cash on each tablet to have the inventory shipped from the vendor’s warehouse to his warehouse. August 27 6 of the tablets purchased on August 12 were returned to the supplier, as they were defective. August 31 During the month 44 tablets were sold at a price of $19,960 each. ( 10 of these units sold were on account to a long standing customer of the business) September 4 A customer, to whom 8 tablets were sold during the first business day of August, returned 4 of the units, as they were not of the brand ordered. September 10 In preparation for the new school year, Luther purchased 35 tablets at a cost of $15,500 each; these were subject to a trade discount of 2% each. September 30 39 tablets were sold during September at a unit selling price of $22,275. September 30 An actual count of inventory was carried out which revealed that there were 8 units of the merchandise in the store room. Unless otherwise stated, assume that all purchases are on account and all sales are for cash. Required: i) Prepare a perpetual inventory record for this merchandise, to determine the company’s cost of goods sold for the quarter and the value of ending. ii) Given that selling & distribution and administrative costs for the quarter were $67,240 and$150,190 respectively, prepare an income statement for Luther Electronics for the quarter ended September 30, 2018. iii) State the journal entries necessary to record the transactions on August 12 and August 31, assuming the company uses a: - Perpetual inventory system - Periodic inventory system iv) Assuming that Luther used the perpetual system and weighted average method of inventory valuation, determine the value of ending inventory and cost of goods sold after the July 31 transaction.

Answer 1

Perpetual Inventory Record - LIFO
	Purchases			Cost of Goods Sold			Inventory on Hand
Date	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost
01.07.2018							10	13420	134200
08.07.2018	38	13900	528200				10	13420	134200
							38	13900	528200
31.07.2018				18	18480	332640	10	13420	134200
							20	13900	278000
12.08.2018	30	13905	417150				10	13420	134200
							20	13900	278000
							30	13905	417150
27.08.2018	-6	13905	-83430				10	13420	134200
							20	13900	278000
							24	13905	333720
31.08.2020				20	13900	278000	10	13420	134200
				24	13905	333720
04.09.2018				-4	13900	-55600	10	13420	134200
							4	13900	55600
10.09.2018	35	14725	515375				10	13420	134200
							4	13900	55600
							35	14725	515375
30.09.2018				35	14725	515375	10	13420	134200
				4	13900	55600
Physical				2	13420	26840	8	13420	107360
Total			1377295			1486575
Calculation of Total Sales Revenue
July 31 Sale			332640
August 31 Sales			878240
Sales Return = 4 * 19960      =			-79840
Sepetember Sales			868725
		Total	1999765
Income Statement
Sales			1999765
Cost of Goods Sold			1486575
Gross Margin			513190
Operating Expenses
Transport Costs 30 * 350 =		$    10,500.00
Selling and Distribution Cost		$    67,240.00
Administrative Cost		$ 150,190.00
	Total	$ 227,930.00	227930
Operating Income			285260
Journal Entries - Periodic Inventory System
Date	Particulars				Dr. Amount	Cr. Amount
12.08.2018	Purchases A/c Dr.				417150.00
	To Accounts Receivable					417150
	( Purchaes made for 30 lap tops. )
31.08.2018	Cash / Bank A/c Dr.				8787240
	To Sale of Laptop A/c					8787240
	( Sales made for 44 lap tops. )
Journal Entries - Perpetual Inventory System
Date	Particulars				Dr. Amount	Cr. Amount
12.08.2018	Purchases A/c Dr.				417150
	To Accounts Receivable					417150
	( Purchaes made for 30 lap tops. )
31.08.2018	Cash / Bank A/c Dr.				8787240
	To Sale of Laptop A/c					8787240
	( to record Sales made for 44 lap tops. )
31.08.2018	Cash / Bank A/c Dr.				611720
	To Sale of Laptop A/c					611720
	( to record Cost of Goods Sold @ @20 *   13900   = 278000 and @24   *   13905   = 333720 )
Perpetual Inventory Record - Weighted Avg. Method of Inventory Valuation
	Purchases			Cost of Goods Sold			Inventory on Hand
Date	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost
01.07.2018							10	13420	134200
08.07.2018	38	13900	528200				48	13800	662400
31.07.2018				18	13800	248400	30	13800	414000