Question

Home Hardware reported beginning inventory of 25 shovels, for a total cost of $250. The company had the following transactions during the month:

Jan. 2 sold 6 shovels on account at a selling price of $15 per unit.

16 Sold 11 shovels on account at a selling price of $15 per unit.

18 Bought 9 shovels on account at a cost of $10 per unit.

19 Sold 11 shovels on account at a selling price of $15 per unit.

24 Bought 11 shovels on account at a cost of $10 per unit.

31 Counted inventory and determined that 16 units were on hand.

2. Prepare the journal entries that would be recorded using a perpetual inventory system, including any "book-to-physical" adjustment that might be needed. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

SOLUTION

Cost per unit = $250 / 25 = $10

Date	General journal	Debit ($)	Credit ($)
Jan.2	Accounts receivable	90
	Sales (6 units * $15)		90
	(To record revenue earned but not received)
	Cost of goods sold	60
	Inventory (6 units * $10)		60
	(To record cost of inventory)
Jan.16	Accounts receivable	165
	Sales (11 units * $15)		165
	(To record revenue earned but not received)
	Cost of goods sold	110
	Inventory (11 units * $10)		110
	(To record cost of inventory)
Jan.18	Purchases	90
	Accounts payable (9*$10)		90
	(To record purchases)
Jan.19	Accounts receivable	165
	Sales (11 units * $15)		165
	(To record revenue earned but not received)
	Cost of goods sold	110
	Inventory (11 units * $10)		110
	(To record cost of inventory)
Jan.24	Purchases	110
	Accounts payable (11*$10)		110
	(To record purchases)
Jan.31	Cost of goods sold	5
	Inventory		5
	(To record for inventory shrinkage)

Units to be hand = Beginning inventory + purchases - sales

= 25 + 20 - 28 = 17

Units in hand = 16

Shrinkage = 17- 16 = 1

Inventory shrinkage = 1 * $5 = 5