Question

QUESTION 1: MERCHANDISING AND INVENTORY VALUATIO 2 of 9 1. A merchandising business sells merchandise for $20.000 cash This merchandise cost the company $12.00 The company uses a perpetual inventory method Prepare the journal entries to record this sale. (4 marks) Date Account Title Ref Debit Credit INVENTORY VALUATIONS Beta Radios uses a periodic inventory system. The beginning inventory of Model X5 radios and the purchases for the year were as follows: (16 marks) Jan. 1 Beginning inventory 1,000 units @ $10.00 Topo Apr. 15 Purchase 500 units @ $12.00 6,000 June 7 Purchase 300 units @ $13.00 3900 Sept. 22 Purchase 1,000 units @ $14.00 14,000 Dec. 4 Purchase 700 units @ $15.00 10600 Total available for sale in the year 3,500 units At December 31, the ending inventory consisted of 1,000 units Determine the cost of the year-end inventory and the cost of goods sold under cach of the following methods of inventory valuation (4 marks for each answer): COST OF INVENTORY GOODS SOLD VALUE AT DEC. 31 FIFO AVERAGE COST

Answer 1

1) Journal entry

date	account and explanation	Debit	Credit
	Cash	20000
	Sales revenue		20000
	(To record sales)
	Cost of goods sold	12000
	Inventory		12000
	(To record cost of goods sold)

2) Calculate following

	Unit	Unit cost	Total cost
Beginning inventory	1000	10	10000
Purchase 1	500	12	6000
Purchase 2	300	13	3900
Purchase 3	1000	14	14000
Purchase 4	700	15	10500
Total	3500		44400

Calculate cost of goods sold and ending inventory

	cost of goods sold	Ending inventory
FIFO	10000+6000+3900+700*14 = 29700	300*14+10500 = 14700
Average cost	44400/3500*2500 = 31714	12686