Question

Bower Consulting Company started the period with cash of $25,000, 500 units of inventory with a cost of $20,000 (uses FIFO) common stock of $20,000 and retained earnings of $25,000. Bower engaged in the following transactions in 2013: 0 0 Transactions during 2013 Purchased with cash 50 units of inventory for $2,500 Purchased on account 250 units of inventory for $14,000 Sold 750 units of inventory for $112,500. This was a cash sale Sold 10 units of inventory for $1,500. This was a cash sale 0 0 = Made a partial refund for 8 units to the customer who purchased the 10 units in the transaction above. B 13 Information for Adjusting Entries Bower carries only one type of inventory item. At year end the market value of each unit of inventory was $45 per unit. Re-evaluate the value of the ending inventory and prepare the necessary journal entry, assuming Bower applies the lower of cost or market rule to individual items

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Answer 1

Answer-2:

Date Account Inventory Cash Inventory Account payable Cash Sales Cost of goods sold Inventory Cash Sales Cost of goods sold Inventory Sales return and allowance Cash Inventory Cost of goods sold Debit Credit $ $ 2,500 2,500 14,000 14,000 112,500 112,500 33,700 33,700 1,500 1,500 5601 560 1,200 1,200 448 4481

FIFO COST METHOD Sale Date Purchase Rate Unit Total Unit Unit Beg. Bal. 1 50 50 2500 50 Balance Rate Total 500 40 $ 20,000 500 40 20,000 50 2,500 500 20,000 2,500 250 56 14,000 50 561 2,800 2,240 56 $ 2,688 40 1 2 50 250 56 14000 750 10 40 56 8 56 448

Date Debit Account Loss on inventory write down Allowance to reduce inventory to LCM Credit 528 Adj. entry 528) 528

Calculation of loss on inventory write down:

Cost of inventory = 48 units × $56                  $2,688

(-) Market value of inventory = 48 units × $45 = $2,160

Loss on inventory write down                            $528

Note: The allowance to reduce inventory to LCM is a contra acount which is shown as deduction from inventory in balance sheet whereas Loss on inventory write down is shown in income statement.

Answer-3:

GENERAL LEDGER Account payable Beg Bal. Beg Bal. Beg Bal. $ Cash $ 25,000 $ 112,500 $ $ 1,500 $ $ $ $ $ $ 14,000 Inventory 20,000 2,500 $ 33,700 14,000 $ 560 448 2,688 2,500 1,200 Bal. $ 14,000 Bal. $ 135,300 Sales Cost of goods sold Sales return and allowance Beg Bal. Beg Bal. Beg Bal. $ 448 $ 1,200 $ 112,500 $ 1,500 $ 114,000 $ $ $ 33,700 560 33,812 Bal. Bal. $ 1,200 Common stock $ 20,000 Retained earning $ 25,000 Beg Bal. Beg Bal. Ball Bal. $ 20,000 Bal. | $ 25,000 Loss on inventory write down Beg Bal. $ 528 Bal. $ 528 Allowance to reduce inventory to LCM Beg Bal. $ 528 Bal. $ 528

Answer-4:

Credit 14000 BOWER CONSULTING COMPANY TRIAL BALANCE For the year ended 2013 Account Name Debit Inventory $ 2,688 Account payable Cash 135300 Sales Cost of goods sold 33812 Sales return and allowance 1200 Loss on inventory write down 528 Common stock Retained earning Allowance to reduce inventory to LCM 114000 20000 25000 T 528 TOTAL $ 173,528 $ 173,528

Answer-5:

BOWER CONSULTING COMPANY Income Statement For the year ended 2013 Ś Sales Less: Sales return and allowance Net sales Less: Cost of goods sold Net Income 114,000 1,200 112,800 33,812 78,988 $