Effect of inventory losses: Perpetual system
Mia Sales experienced the following events during 2011, its first year of operation:
1. Started the business when it acquired $50,000 cash from the issue of common stock.
2. Paid $21,000 cash to purchase inventory.
3. Sold inventory costing $12,500 for $26,500 cash.
4. Physically counted inventory showing $7,900 inventory was on hand at the end of the accounting period.
Required
a. Open appropriate ledger T-accounts, and record the events in the accounts.
b. Prepare an income statement and balance sheet for 2011.
c. Explain how differences between the book balance and the physical count of inventory could arise. Why is being able to determine whether differences exist useful to management?
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