Question 2 Necks Auto are retailers who purchase and sell vehicle parts & accessories, including batteries. The business uses a perpetual inventory system and began the last quarter of 2020 with merchandise inventory of 10 batteries of the "NeverDie" brand at a total cost of $168,200. The following transactions relating to the "NeverDie" brand were completed during the quarter: October 5 Purchased 15 batteries at a cost of $17,020 each. October 14 October 22 Sold 18 batteries at $22,250 per battery November 10 November 12 November 27 November 30 Purchased 24 batteries at a cost of $18,175 each, but the supplier gave a 4% quantity discount. Sold 15 batteries to Sammy's Auto Ltd and 10 batteries to Chill's Auto Detailing at a price of $23,990 each. Owing to an increased demand for this brand of batteries, 30 batteries were purchased on account at a cost of $17,612 each. In addition, Necks Auto paid $288 in cash on each battery to have the inventory shipped from the vendor's warehouse to their location. Sold 23 batteries, which yielded a total sales revenue of $576,840. (8 of these batteries were sold on account to Sassy Motors & Auto Accessories, a longstanding customer) A customer, to whom 5 batteries were sold at the end of the business day on November 27, returned 2 units, as they were of the "Bongtolast" brand. December 2 In preparation for the festive season, Necks purchased 25 batteries at a total cost of $474,500. December 15 December 30 December 31 5 of the batteries purchased on December 2 were returned to the supplier, as the poles were either corroded or otherwise badly damaged. Sold 22 batteries to two customers (XL Traders & Sassy Motors Auto Accessories) at a selling price of $26,950 each. An actual count of inventory was carried out which revealed that there were 9 units of the "Never Die" brand in the warehouse. All purchases were on account and received on the dates stated. Required: a) Prepare a perpetual inventory record for Necks Auto, using the first in, first out (FIFO) method of inventory valuation to determine the value of ending inventory at December 31, 2020, and the total amount to be assigned to cost of goods sold for the period. b) Given that selling, distribution and administrative costs associated with the NeverDie brand of batteries for the quarter were $23,445, $10,250 and $75,435 respectively, prepare an income statement for Necks Auto (NeverDie) for the quarter ended December 31, 2020, to determine the net profit for the quarter. c) Journalize the transactions on November 12 and November 27, assuming the freight was paid by cash and the business uses a: Periodic inventory system. - Perpetual inventory system d) Explain the difference between a product cost and a period cost. How does the product cost of a manufacturer differ from the product cost of a merchandiser?

Question 2 Necks Auto are retailers who purchase and sell vehicle parts & accessories, including batteries. The business uses a perpetual inventory system and began the last quarter of 2020 with merchandise inventory of 10 batteries of the "NeverDie" brand at a total cost of $168,200. The following transactions relating to the "NeverDie" brand were completed during the quarter: October 5 Purchased 15 batteries at a cost of $17,020 each. October 14 October 22 Sold 18 batteries at $22,250 per battery November 10 November 12 November 27 November 30 Purchased 24 batteries at a cost of $18,175 each, but the supplier gave a 4% quantity discount. Sold 15 batteries to Sammy's Auto Ltd and 10 batteries to Chill's Auto Detailing at a price of $23,990 each. Owing to an increased demand for this brand of batteries, 30 batteries were purchased on account at a cost of $17,612 each. In addition, Necks Auto paid $288 in cash on each battery to have the inventory shipped from the vendor's warehouse to their location. Sold 23 batteries, which yielded a total sales revenue of $576,840. (8 of these batteries were sold on account to Sassy Motors & Auto Accessories, a longstanding customer) A customer, to whom 5 batteries were sold at the end of the business day on November 27, returned 2 units, as they were of the "Bongtolast" brand. December 2 In preparation for the festive season, Necks purchased 25 batteries at a total cost of $474,500. December 15 December 30 December 31 5 of the batteries purchased on December 2 were returned to the supplier, as the poles were either corroded or otherwise badly damaged. Sold 22 batteries to two customers (XL Traders & Sassy Motors Auto Accessories) at a selling price of $26,950 each. An actual count of inventory was carried out which revealed that there were 9 units of the "Never Die" brand in the warehouse. All purchases were on account and received on the dates stated. Required: a) Prepare a perpetual inventory record for Necks Auto, using the first in, first out (FIFO) method of inventory valuation to determine the value of ending inventory at December 31, 2020, and the total amount to be assigned to cost of goods sold for the period. b) Given that selling, distribution and administrative costs associated with the NeverDie brand of batteries for the quarter were $23,445, $10,250 and $75,435 respectively, prepare an income statement for Necks Auto (NeverDie) for the quarter ended December 31, 2020, to determine the net profit for the quarter. c) Journalize the transactions on November 12 and November 27, assuming the freight was paid by cash and the business uses a: Periodic inventory system. - Perpetual inventory system d) Explain the difference between a product cost and a period cost. How does the product cost of a manufacturer differ from the product cost of a merchandiser?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Transcribed Image Text:Question 2 Necks Auto are retailers who purchase and sell vehicle parts & accessories, including batteries. The business uses a perpetual inventory system and began the last quarter of 2020 with merchandise inventory of 10 batteries of the "NeverDie" brand at a total cost of $168,200. The following transactions relating to the "NeverDie" brand were completed during the quarter: October 5 Purchased 15 batteries at a cost of $17,020 each. October 14 October 22 Sold 18 batteries at $22,250 per battery November 10 November 12 November 27 November 30 Purchased 24 batteries at a cost of $18,175 each, but the supplier gave a 4% quantity discount. Sold 15 batteries to Sammy's Auto Ltd and 10 batteries to Chill's Auto Detailing at a price of $23,990 each. Owing to an increased demand for this brand of batteries, 30 batteries were purchased on account at a cost of $17,612 each. In addition, Necks Auto paid $288 in cash on each battery to have the inventory shipped from the vendor's warehouse to their location. Sold 23 batteries, which yielded a total sales revenue of $576,840. (8 of these batteries were sold on account to Sassy Motors & Auto Accessories, a longstanding customer) A customer, to whom 5 batteries were sold at the end of the business day on November 27, returned 2 units, as they were of the "Bongtolast" brand. December 2 In preparation for the festive season, Necks purchased 25 batteries at a total cost of $474,500. December 15 December 30 December 31 5 of the batteries purchased on December 2 were returned to the supplier, as the poles were either corroded or otherwise badly damaged. Sold 22 batteries to two customers (XL Traders & Sassy Motors Auto Accessories) at a selling price of $26,950 each. An actual count of inventory was carried out which revealed that there were 9 units of the "Never Die" brand in the warehouse. All purchases were on account and received on the dates stated.

Transcribed Image Text:Required: a) Prepare a perpetual inventory record for Necks Auto, using the first in, first out (FIFO) method of inventory valuation to determine the value of ending inventory at December 31, 2020, and the total amount to be assigned to cost of goods sold for the period. b) Given that selling, distribution and administrative costs associated with the NeverDie brand of batteries for the quarter were $23,445, $10,250 and $75,435 respectively, prepare an income statement for Necks Auto (NeverDie) for the quarter ended December 31, 2020, to determine the net profit for the quarter. c) Journalize the transactions on November 12 and November 27, assuming the freight was paid by cash and the business uses a: Periodic inventory system. - Perpetual inventory system d) Explain the difference between a product cost and a period cost. How does the product cost of a manufacturer differ from the product cost of a merchandiser?

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