Financial Accounting Principles
Assessment 2: Adjusting Entries, Inventory, and Cost of Goods Sold
Use this worksheet to complete the following two exercises for Assessment 2. Refer to the instructions in the course for submitting your assessment.
Exercise 2-1
For this exercise, use the following fiscal year-end unadjusted trial balance for the Bigelow Company.
Note:Â Rent and salary expenses are divided equally between general/administrative and selling activities. Bigelow uses a perpetual inventory system.
| BIGELOW COMPANY
Unadjusted Trial Balance April 30, 2012 (Fiscal year-end) |
||
| Debit | Credit | |
| Cash | $2,150 | |
| Merchandise inventory | 12,100 | |
| Store supplies | 4,600 | |
| Prepaid insurance | 2,100 | |
| Store equipment | 42,350 | |
| Accumulated depreciation—Store equipment | $12,000 | |
| Accounts payable | 8,700 | |
| Common stock | 4,500 | |
| Retained earnings | 25,400 | |
| Dividends | 1,800 | |
| Sales | 108,500 | |
| Sales discounts | 950 | |
| Sales returns and allowances | 1,750 | |
| Cost of goods sold | 36,300 | |
| Depreciation expense—Store equipment | 0 | |
| Salaries expense | 32,500 | |
| Insurance expense | 0 | |
| Rent expense | 13,800 | |
| Store supplies expense | 0 | |
| Advertising expense | 8,700 | _______ |
| Totals | $159,100 | $159,100 |
Prepare adjusting journal entries for the following:
$1,700 of store supplies remaining at the end of the fiscal year.
$1,800 of expired insurance for the fiscal year (administrative expense).
$1,250 depreciation expense on store equipment for the fiscal year (selling expense).
$11,200 of merchandise inventory remaining at the end of the fiscal year (based on a physical count to estimate shrinkage).
Adjustment (a):
| Supply Expense | 2900 | |
| Supplies | 2900 |
Adjustment (b):
| Insurance Expense | 1800 | |
| Prepaid Insurance | 1800 |
Adjustment (c):
| Depreication Equipment | 1250 | |
| Account Depreciation | 1250 |
Adjustment (d):
| COG | 900 | |
| Inventory | 900 |
Prepare a fiscal year 2012 multiple-step income statement. For distinguished performance, prepare both multiple- and single-step income statements.
| BIGELOW COMPANY
Income Statement For Year Ended April 30, 2011 |
[Create the 2011 multiple-step income statement here.]
| Bigelow Company | ||
| Multistep Income Statement | ||
| For Year Ended April 30, 2011 | ||
| Revenue | ||
| Sales Revenue | $108,500 | |
| Less: Sales Return & Allowance | $2,700 | |
| Less: COG | $36,300 | |
| Gross Profit | $69,500 | |
| Less: Selling & Admin Expenses | ($55,000) | |
| Net Income | $14,500 | |
Prepare a fiscal year 2012 single-step income statement.
| BIGELOW COMPANY
Income Statement For Year Ended April 30, 2011 |
[Create the 2011 single-step income statement here.]
| Bigelow Company | ||
| Single Step Income Statement | ||
| Year end April 30, 2011 | ||
| Revenue | ||
| Sales Revenue | $108,500 | |
| Less: Sales Returns | ($2,700) | |
| Total Revenue | $105,800 | |
| Expenses | ||
| Advertising Expense | $8,700 | |
| COG | $36,300 | |
| Rent Expense | $13,800 | |
| Salary & Wages | $32,500 | |
| Total Expenses | $91,300 | |
| Net Income | $14,500 | |
Compute the following ratios as of April 30, 2012.
Current ratio.
| Current Asset | 20,950 | 2.41 |
| Current Liability | 8,700 |
2150+12100+4600+2100/8700=2.41:1
Acid test ratio.
| Current Asset Inventory | 8,850 | 1.02 |
| Current Liability | 8,700 |
2150+12100+4600+2100-12100/8700=1.02:1
For distinguished performance, compute the gross margin ratio.
69500/105800×100=65.69
Gross Margin Ratio = Gross Profit = 69, 500 which is 65.69%
Net Sales 105,800
Exercise 2-2
The following A. B. Murphy Company data show purchase and sales transactions for the month of April. A. B. Murphy uses a perpetual inventory system.
| Date | Activities | Units Purchased (at cost) | Units Sold (at retail) |
| Apr 1 | Beginning inventory | 065 units @ $40/unit | |
| Apr 8 | Purchase | 225 units @ $45/unit | |
| Apr 12 | Sales | 235 units @ 75/unit | |
| Apr 19 | Purchase | 050 units @ $50/unit | |
| Apr 23 | Purchase | 125 units @ $55/unit | 0 |
| Apr 27 | Sales | ________ | 95 units @ 80/unit |
| Totals | 465 units | 330 units |
Compute the following:
Cost of (1) goods available for sale and (2) number of units for sale.
65×40+225×40+225×45+50+12×55=22,100
Number of units in ending inventory.
135
Cost assigned to ending inventory, using any three of the following four methods. Compute costs using all four methods for distinguished performance. Round per unit costs to three decimal places and inventory balances to the nearest dollar.
FIFO.
LIFO.
Weighted average.
Specific identification (see note below).
FIFO Perpetual
| Date | Goods Purchased | Cost of Goods Sold | Inventory Balance |
Apr 1 |
2600 |
2600 |
|
Apr 8 |
7650 |
7650 |
|
Apr 19 |
2500 |
2500 |
|
Apr 23 |
6825 |
6825 |
|
Apr 27 |
6000 |
6000 |
|
LIFO Perpetual
| Date | Goods Purchased | Cost of Goods Sold | Inventory Balance |
Weighted Average Perpetual
| Date | Goods Purchased | Cost of Goods Sold | Inventory Balance |
Specific Identification
Note:Â The April 12 sale comprised 55 units from beginning inventory and 180 units from the April 8 purchase. The April 27 sale comprised 30 units from the April 19 purchase and 65 units from the April 23 purchase.
| Date | Goods Purchased | Cost of Goods Sold | Inventory Balance |
Gross profit, using FIFO, LIFO, weighted average, and specific identification.
| FIFO | LIFO |
WeightedAverage |
Specific
Identifi-cation |
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