Tutorial 7 (Week beginning 9th September 2019)
Topic 6: Inventory (Part 1): Recording using both the periodic and perpetual
methods
SOLUTION TO HOMEWORK QUESTIONS
1. E4.4 (p. 267)
Cambells Office Supplies
6 Sept. Inventory (80 x $22) 1,760
Cash 1,760
9 Sept. Freight In 88
Cash 88
10 Sept. Accounts Receivable 44
Inventory 44
12 Sept. Accounts Receivable (26 x $33) 858
Sales 858
Cost of sales (26 x $22) 572
Inventory 572
14 Sept. Sales Returns and Allowances 33
Accounts Receivable 33
Inventory 22
Cost of sales 22
20 Sept. Accounts Receivable (30 x $33) 990
Sales 990
Cost of sales (30 x $22) 660
Inventory 660
2. PSB4.2 (p.275)
Wen Goh Warehouse
July 1 Inventory (50 X $15) 750
Accounts Payable 750
3 Accounts Receivable (40 X $25) 1,000
Sales 1,000
Cost of Sales (40 X $15) 600
Inventory 600
6 Accounts Payable 750
1
Discount received ($750 X 0.01) 8
Cash 742
9 Cash 990
Discounts allowed (1,000 x .01) 10
Accounts Receivable 1,000
17 Accounts Receivable (30 X $25) 750
Sales 750
Cost of Sales (30 X $15) 450
Inventory 450
18 Inventory (60 X $15) 900
Accounts Payable 900
Freight-In 100
Cash 100
20 Accounts Payable 150
Inventory 150
21 Cash 742
Discounts allowed ($750 X .01) 8
Accounts Receivable 750
22 Accounts Receivable (40 X $25) 1,000
Sales 1,000
22 Cost of Sales (40 X $15) 600
Inventory 600
30 Accounts Payable ($900 – $150) 750
Cash 750
31 Sales Returns and Allowances 125
Accounts Receivable 125
Inventory 75
Cost of Sales 75
2
(b) The advantages for Wen Goh Warehouse of using a perpetual inventory system as
opposed to a periodic inventory system are:
• Inventory is constantly updated every time a purchase or sale is made. This means
that Wen Goh Warehouse will be aware of when to reorder items of inventory.
• Cost of sales is updated every time a sale is made so interim financial statements can
be prepared without having to conduct an inventory count.
• When Wen Goh Warehouse does conduct an inventory count (which should be at least
annually), any inventory losses can be accurately determined.
Using a perpetual inventory system would be a disadvantage for Wen Goh Warehouse
if the business does not have a suitable computer system to maintain inventory
records.
3. Adele Ltd is a distributor of microphones used in the music industry. On 1 June, Adele
Ltd had 300 microphones on hand at a cost of $40 each. The selling price of a
microphone is $90.
Adele Ltd’s related transactions for the month of June are as follows:
Units
Purchase returns, 4 June 30
Sales, 7 June 200
Purchases, 12 June 400
Sales returns, 20 June 10
Sales, 28 June 50
All purchases and sales are for cash and all returns were not damaged and are
available for re-sale. A stocktake at period end revealed 415 microphones on hand.
Required:
(a) Record the above transactions for the month of June in the general journal using the
periodic inventory method, including any relevant balance day adjustments and/or
closing entries related to inventory. Narrations are NOT required.
(b) Record the above transactions for the month of June in the general journal using the
perpetual inventory method, including any relevant balance day adjustments and/or
closing entries related to inventory. Narrations are NOT required.
(a)
Date Account Dr Cr
June 4 Cash at Bank 1,200
Purchase Returns 1,200
3
7 Cash at Bank 18,000
Sales Revenue 18,000
12 Purchases Expense 16,000
Cash at Bank 16,000
20 Sales Returns 900
Cash At Bank 900
28 Cash at Bank 4,500
Sales Revenue 4,500
30 COGS 12,000
Inventory 12,000
30 COGS 16,000
Purchases Expense 16,000
30 Purchase Returns 1,200
COGS 1,200
30 Inventory 16,600
COGS 16,600
(b)
Date Account Dr Cr
June 4 Cash at Bank 1,200
Inventory 1,200
7 Cash at Bank 18,000
Sales Revenue 18,000
COGS 8,000
Inventory 8,000
4
12 Inventory 16,000
Cash at Bank 16,000
20 Sales Returns 900
Cash At Bank 900
Inventory 400
COGS 400
28 Cash at Bank 4,500
Sales Revenue 4,500
COGS 2,000
Inventory 2,000
30 Inventory Loss 600
Inventory 600
4. The following information relates to the business of Matt Charlton’s Mobile Phone
Shop for the month of October 2019. The business maintains a perpetual inventory
system.
October 2 Purchased 560 phones on credit for $560 each from Robert Edwards Pty
Ltd, terms 2/10, n/30. Matt Charlton also made a cash payment of $300
for freight on this date.
Sold 120 phones on credit to Kingsford Phones for $1 240 each; terms
7 2/10, n/30. Each phone sold costs Matt Charlton $560.
8 Received $3 360 credit for 6 damaged phones returned to Robert Edwards
Pty Ltd.
11 Paid Robert Edwards Pty Ltd in full.
14 Granted Kingsford Phones $8 680 credit for 7 phones returned.
17 Received payment in full from Kingsford Phones.
27 Purchased 200 phones for cash from Will Ferguson for $105 000.
Required:
5
Prepare journal entries for the above transactions for the month of October 2019 for Matt
Charlton’s Mobile Phone Shop. Narrations are NOT required.
Date Account Dr Cr
2 October Inventory 313,600
Accounts payable 313,600
Freight-in 300
Cash 300
7 October Accounts receivable 148,800
Sales 148,800
Cost of sales 67,200
Inventory 67,200
8 October Accounts payable 3,360
Inventory 3,360
11 October Accounts payable 310,240
Discount revenue 6,205
Cash 304,035
14 October Sales returns and allowances 8,680
Accounts receivable 8,680
Inventory 3,920
Cost of sales 3,920
17 October Cash 137,318
Discount expense 2,802
Accounts receivable 140,120
27 October Inventory 105,000
Cash 105,000
