At the beginning of October, Bowser Company’s inventory consists of 57 units with a cost per unit of $43. The following transactions occur during the month of October. October 4 Purchase 123 units of inventory on account from Waluigi Company for $50 per unit, terms 2/10, n/30. October 5 Pay cash for freight charges related to the October 4 purchase, $648. October 9 Return 15 defective units from the October 4 purchase and receipt of credit. October 12 Pay Waluigi Company in full. October 15 Sell 153 units of inventory to customers on account, $12,240. (Hint: The cost of units sold from the October 4 purchase includes $50 unit cost plus $6 per unit for freight less $1 per unit for the purchase discount, or $55 per unit.) October 19 Receive full payment from customers related to the sale on October 15. October 20 Purchase 93 units of inventory from Waluigi Company for $63 per unit. October 22 Sell 93 units of inventory to customers for cash, $7,440. Required: 1. Assuming that Bowser Company uses a FIFO perpetual inventory system to maintain its inventory records, record the transactions. 2. Suppose by the end of October that the remaining inventory is estimated to have a net realizable value per unit of $35. Record any necessary adjusting entry for lower of cost and net realizable value. 3. Prepare the top section of the multiple-step income statement through gross profit for the month of October after the adjusting entry for lower of cost and net realizable value.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Problem 6-6A (Algo) Record transactions using a perpetual system, prepare a partial income statement, and adjust for the lower of cost and net realizable value (LO6-2, 6-3, 6-4, 6-5, 6-6)

At the beginning of October, Bowser Company’s inventory consists of 57 units with a cost per unit of $43. The following transactions occur during the month of October.

October 4	Purchase 123 units of inventory on account from Waluigi Company for $50 per unit, terms 2/10, n/30.
October 5	Pay cash for freight charges related to the October 4 purchase, $648.
October 9	Return 15 defective units from the October 4 purchase and receipt of credit.
October 12	Pay Waluigi Company in full.
October 15	Sell 153 units of inventory to customers on account, $12,240. (Hint: The cost of units sold from the October 4 purchase includes $50 unit cost plus $6 per unit for freight less $1 per unit for the purchase discount, or $55 per unit.)
October 19	Receive full payment from customers related to the sale on October 15.
October 20	Purchase 93 units of inventory from Waluigi Company for $63 per unit.
October 22	Sell 93 units of inventory to customers for cash, $7,440.

Required:

1. Assuming that Bowser Company uses a FIFO perpetual inventory system to maintain its inventory records, record the transactions.
2. Suppose by the end of October that the remaining inventory is estimated to have a net realizable value per unit of $35. Record any necessary adjusting entry for lower of cost and net realizable value.
3. Prepare the top section of the multiple-step income statement through gross profit for the month of October after the adjusting entry for lower of cost and net realizable value.

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