Fundamentals Of Financial Accounting
Fundamentals Of Financial Accounting
6th Edition
ISBN: 9781259864230
Author: PHILLIPS, Fred, Libby, Robert, Patricia A.
Publisher: Mcgraw-hill Education,
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Chapter 6, Problem 29E

(Supplement 6A) Recording Purchases and Sales Using Perpetual and Periodic Inventory Systems

Kangaroo Jim Company reported beginning inventory of 100 units at a per unit cost of $25. It had the following purchase and sales transactions during the year:

Jan. 14 Sold 25 units at unit sales price of $45 on account.
Apr. 9 Purchased 15 additional units at a per unit cost of $25 on account.
Sept. 2 Sold 50 units at a sales price of $50 on account.
Dec. 31 Counted inventory and determined 40 units were Still on hand.

Required:

Record each transaction, assuming that Kangaroo Jim Company uses (a) a perpetual inventory system and (b) a periodic inventory system.

(a)

Expert Solution
Check Mark
To determine

To Record: Each transaction by assuming Company KJ uses perpetual inventory system.

Answer to Problem 29E

Recording transactions by using Perpetual inventory system:

Date Account Title & Explanation Debit ($) Credit($)
January 14 Accounts receivable 1,125  
Sales Revenue   1,125
(To record sale of goods on account)
January 14 Cost of goods sold 625  
Inventory   625
(To record cost of goods sold)    
April 9 Inventory 375  
Accounts payable   375
(To record purchase of additional units on account)    
September 2 Accounts receivable 2,500  
Sales Revenue   2,500
(To record sale of goods on account)
September 2 Cost of goods sold 1,250  
Inventory   1,250
(To record cost of goods sold)
December 31 No year-end adjusting entry needed

Table (1)

Explanation of Solution

Perpetual Inventory System:

Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases, and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time.

Working notes:

On January 14:

  • Accounts receivable is an asset and it increases. Hence, debit the accounts receivable by $1,125.
  • Sales revenue is a component of stock holders’ equity and it increases. Hence, credit the sales revenue by $1,125.
  • Cost of goods sold is an expense account which is a component of stockholders’ equity and it increases. Hence, debit cost of goods sold by $625.
  • Inventory is an asset and it decreases. Hence, credit inventory by $625.

Calculation of the goods sold on account:

Goods sold on account=No. of units sold×Unit sales price=25units×$45=$1,125

Calculation of cost of goods sold:

Cost of goods sold=No. of units sold×Cost per unit=25units×$25=$625

On April 9:

  • Inventory is an asset and it increases. Hence, debit the inventory by $375
  • Accounts payable is a liability and it increases. Hence, credit the accounts payable by $375.

Calculation of purchase of additional units on account:

Purchases=No.of units sold×Cost per unit=15units×$25=$375

On September 2:

  • Accounts receivable is an asset and it increases. Hence, debit the accounts receivable by $2,500.
  • Sales revenue is a component of stock holders’ equity and it increases. Hence, credit the sales revenue by $2,500.
  • Cost of goods sold is an expense account which is a component of stockholders’ equity and it increases. Hence, debit cost of goods sold by $1,250.
  • Inventory is an asset and it decreases. Hence, credit inventory by $1,250.

Calculation of the goods sold on account:

Goods sold on account=No. of units sold×Unit sales price=50units×$50=$2,500

Calculation of cost of goods sold:

Cost of goods sold=No. of units sold×Cost per unit=50units×$25=$1,250

(b)

Expert Solution
Check Mark
To determine

To Record: Each transaction by assuming Company KJ uses periodic inventory system.

Answer to Problem 29E

Recording transactions by using Periodic inventory system:

Date Account Title & Explanation Debit ($) Credit($)
January 14 Accounts receivable 1,125  
Sales Revenue   1,125
(To record sale of goods on account)
April 9 Purchases 375  
Accounts payable   375
(To record purchase of additional units on account)    
September 2 Accounts receivable 2,500  
Sales Revenue   2,500
(To record sold goods on account)
December 31 Cost of goods sold(1) 2,875  
Purchases   375
Inventory(2) 2,500
  (To record closing of beginning inventory with cost of goods sold)    
Inventory(3) 1,000  
Cost of goods sold 1,000
  (To record closing of ending inventory with cost of goods sold)

Table (2)

Explanation of Solution

Periodic Inventory System:

Periodic inventory system is a system in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.

Working notes:

On January 14:

  • Accounts receivable is an asset and it increases. Hence, debit the accounts receivable by $1,125.
  • Sales revenue is a component of stock holders’ equity and it increases. Hence, credit the sales revenue by $1,125.

Calculation of the goods sold on account:

Goods sold on account=No. of units sold×Unit sales price=25units×$45=$1,125

On April 9:

  • Purchase is an expense account which is a component of stockholders’ equity and it increases. Hence, debit the purchases by $375
  • Accounts payable is a liability and it increases. Hence, credit the accounts payable by $375.

Calculation of purchase of additional units on account:

Purchases=No.of units sold×Cost per unit=15units×$25=$375

On September 2:

  • Accounts receivable is an asset and it increases. Hence, debit the accounts receivable by $2,500.
  • Sales revenue is a component of stock holders’ equity and it increases. Hence, credit the sales revenue by $2,500.

Calculation of the goods sold on account:

Goods sold on account=No. of units sold×Unit sales price=50units×$50=$2,500

On December 31:

  • Cost of goods sold is an expense account which is a component of stockholders’ equity and it increases. Hence, debit cost of goods sold by $2,875.
  • Purchase is an expense account which is a component of stockholders’ equity it increases. Hence, credit the purchases by $375
  • Inventory is an asset and it decreases. Hence, credit inventory by $2,500.
  • Inventory is an asset and it increases. Hence, debit inventory by $1,000.
  • Cost of goods sold is an expense account which is a component of stockholders’ equity and it increases. Hence, debit cost of goods sold by $1,000.

Calculation of inventory:

Inventory=No.of units sold×Cost per unit=15units×$25=$375

Calculation of cost of goods sold:

Particulars Amount ($) Amount ($)
Beginning inventory (2) 2,500  
Add: Purchases 375  
Cost of goods available for sale 2,875  
Less: Ending inventory (3) 1,000  
Cost of goods sold 1,875

Table (3)

(1)

Calculation of beginning Inventory:

Inventory=Beginning inventory×Cost per unit=100units×$25=$2,500 (2)

Calculation of ending Inventory:

Inventory=Ending inventory×Cost per unit=40units×$25=$1,000 (3)

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Chapter 6 Solutions

Fundamentals Of Financial Accounting

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