Chapter 5b

Question 1

How does inventory account change?

Answer 1

(1) increases with new purchase
(2) increases with frieght cost paid
(3) Decreases with purchase return
(4) Decreases with purchase discount

Question 2

What do we do under the periodic system?

Answer 2

We use temporary accounts (i.e., purchases, freight-in, purchase return and allowance, purchase discount) for journal entries and then calculate the cost of goods purchased at the end of the year

Question 3

equation for goods purchased

Answer 3

net purchases + freight (FOB shipping)

Question 4

equation for net purchases

Answer 4

purchases - purchases return & allowance - purchase discount

Question 5

Perpetual system

Answer 5

COGS and the reduction in inventory is deteremined each time a sale occurs

Question 6

Periodic system

Answer 6

COGS and the reduction in inventory is determined only at the end of the fiscal year(?)

Question 7

Returns and allowances under perpetual system

Answer 7

(Dr) Sales return and allowances
(Cr) Accounts receivable
(Dr) Inventory
(Cr) COGS

Question 8

Sales discount

Answer 8

(Dr) Cash, sales discount

(cr) Accounts receivable

Question 9

Credit sales of $153 is made on Sept1, terms 2//10, net/30. Sales return of $3 occurred on Sept 2. How much does a company receieve from a customer on September 10?

Answer 9

$147

Question 10

Beginning balance of A/R is 100, ending balance of A/R is 400, Sales return and allowance is 50, sales discount is 50. Assume that cash collection from customers has not occurred during this period. What is the total credit sales amount in this year?

Answer 10

Ar end = AR beg + credit cales - cash collection - sales revenue- sales discount so 400

Question 11

Error correction (recorded inventory is not equal to actual inventory) under perpetural system

Answer 11

(1) Recorded inventories > Actual inventories
(Dr) COGS
(Cr) Inventory

(1b) Theft
(Dr) Loss
(Cr) Inventory

(2) Recorded inventories < Actual inventories
(Dr) Inventory
(Cr) COGS

(2b) Santa Claus
(Dr) Inventory
(Cr) Gain from Santa gift (gain is similar to revenue and refers to non-frequent things)

Question 12

What is the number 1 cause for the difference between actual inventory and recorded inventory?

Answer 12

Employee theft

Question 13

What can we preduct under the perpetual system?

Answer 13

What should be ending inventory given that we keep track of beginning inventory, new purchase of inventory, and COGS

Question 14

What do we assume with inventory in the periodic system?

Answer 14

If the inventory is not in the warehouse it must have been sold

Question 15

Which inventory system makes it easier to identify inventory shrinkage?

Answer 15

Perpetual

Question 16

Assume the inventory help by KJI on July 1, 2013 had a carrying amount of 9,000,000. On December 1, 2013, thieves stole all the jewellery on hand. Records of the inventory on hand at that date do not exist as KJI uses a periodic inventory system. The following financial information is available for th period covering July 1, 2013 to November 30, 2013.

Inventory purchased on account = 8,000,000
Inventory purchased for cash = 2,000,000
Sales = 16,000,000
Average gross profit margin on sales = 75%

Given the information provided above, compute the estimated value of inventory stolen ad KJI

Answer 16

Pecause periodic system is used we do not decrease inventory or increases COGs and expenses.

Ending balance of inventory = inventory stoeln

Ending balance = beginning balance (9 mil) + purchase (2 mil + 8 mil) - inventory sold (COGS)

GP margin (0.75) = (net sales (16 mil) - COGS)/net sales (16 mil)

= 15mil