Intermediate Accounting I (ACCT 3311) HW 3: Cash & Inventory

This document presents solutions for Homework 3 of the Intermediate Accounting I course (ACCT 3311), covering key concepts from Chapters 7, 8, and 9. The assignment includes detailed calculations and journal entries related to cash and cash equivalents, including the determination of the cash ...Read More

Intermediate Accounting 1

E 7-2
LO2
1. Cash and cash equivalents balance
$
Cash in hand- checking amount 22500
Cash on hand (currency and coins) 5000
Government bonds (six months maturity) -
Customer checks remain undeposited 1840
Government bonds (60 days maturity) 5000
34340
2. Some items are not included while determining the cash and equivalents balance such as:
According to IAS 7 the bonds which are issued by government and the maturity period are less than
3months from the date its issuance (Venter, 2016).
Undeposited check received from customers has not been considered as postdated so it is recorded to
compute the correct balance.
E 7-7
LO4
1. Return inward (Return inward) Account Dr. $450000
Account receivable (Debtors) Cr. $450000
(Being sales return recorded)
Stock or inventory Account Dr. 292500
Cost of Sales ($450000 X 65 percent) Cr. 2925000
(Being COGS reduced and the system of perpetual inventory has been assumed)
Return inward Dr. 10000
Allowance for Return inward Cr. 10000
(Being sales returns has been adjusted)
($11500000X 4% ̶ $450000)
Stock (Inventory) [expected returns] Dr. 6500
COGS Cr. 6500

2. Year-end adjustment entry
Opening balance 300000
Addition: Adjustment (Year-end) 10000
Closing Balance 310000
E 7-26: Bank Reconciliation
Jensen Company
Bank Reconciliation Statement
As of 31st May, 2013
Particulars
Amount in
$
Bank balance as per books 23820
Less: Deposits outstanding 2340
Less: Bank charges 38
Add: Checks outstanding 1890
Balance as per bank statement 23332
E 7-24: Petty Cash
Loucks Company
Journal Entries for Petty Cash
Particulars Debit
($)
Debit
($)
Petty Cash 200
To Cash 200
Office expenses (supplies) 76
Lunch expenses 48

Postage expenses 20
Miscellaneous expenses 19
To Cash 163
E 8-4: Perpetual & Periodic Inventory systems (comparison)
Johnson Corporation
Journal Entries
2013
Perpetual System Periodic System
Particulars Debit
($)
Credit
($) Particulars Debit
($)
Credit
($)
Inventory Account
155,00
0 Purchases Account 155,000
To Accounts Payable 155,000 To Accounts Payable 155,000
Inventory Account 10,000 Freight-in Account 10,000
To Cash Account 10,000 To Cash Account 10,000
Accounts Payable 12,000 Accounts Payable 12,000
To Inventory Account 12,000 To Purchase Returns 12,000
Accounts Receivable
250,00
0 Accounts Receivable 250,000
To Sales Account 250,000 To Sales Account 250,000
Cost of Goods Sold
148,00
0 No Entry
To Inventory Account 148,000
NIL
COGS 148,000
Closing Stock 30,000
Return outward 12,000
To Opening Inventory 25,000
To Purchases 155,000
To Freight-in 10,000

E 8-5: Periodic Inventory System (Missing figures)
Palaya Company
Calculation of missing figures
Particulars 2013 2014 2015
Beginning Inventory 275,000 249,000 225,000
Purchases (gross) 630,000 610,000 585,000
Less: Purchase discounts (18,000) (15,000) (12,000)
Less: Purchase returns (24,000) (30,000) (14,000)
Add: Freight-in 13,000 32,000 16,000
Net Purchases 601,000 597,000 575,000
Cost of Goods sold available for sale 876,000 846,000 800,000
Less: Cost of Goods Sold 627,000 621,000 584,000
Ending Inventory 249,000 225,000 216,000
BE 9-6: Retail Method of Inventory (Average Cost)
Kiddies World
Calculation of Ending Inventory & COGS
Based on Average Cost
(The company is following Retail Method of inventory recording)
Particulars Cost Price
($)
Retail Price
($)
Beginning Inventory 300,000 450,000
Add: Net Purchases 861,000 1,210,000
Add: Freight-in 22,000 -
Add: Net Markups - 48,000
Less: Net Markdowns - (18,000)
Goods available for sale 1,183,000 1,690,000
Less: Net sales 1,200,000
Estimated closing inventory at retail 490,000
Estimated closing inventory at cost ($490,000 x 70%) (343,000)
Estimated Cost of Goods Sold 840,000
Note: Percentage of Retail margin = 1,183,000/1,690,000 = 70%

BE 9-7: Retail Inventory Method (LIFO)
Kiddies World
Computation of closing Inventory & COGS
LIFO (Retail Method)
Particulars
Amount in
Cost
($)
Amount in
Retail
($)
Inventory at the beginning 300,000 450,000
Add: Purchases (net) 861,000 1210000
Add: Freight-inwards 22,000 -
Add: gross profit (Markup) nil 48,000
Less: Markdown - 18,000
Goods for sale (including opening inventory) 1,183,000 1,690,000
Goods for sale (excluding opening inventory) 883,000 1,240,000
Goods for sale (including opening inventory) 1,183,000 1,690,000
Less: Sales (net) 1,200,000
Expected closing inventory in retail price 490,000
Expected closing inventory in cost price (328,484)
Expected Cost of Sales 854,516
Estimated closing inventory at cost
Particulars Cost
($)
Cost of beginning inventory ($ 450,000 x 66.67%) 300,000
Add: Current Period's Layer
Estimated closing inventory at retail 490,000
Estimated opening inventory at retail 450,000
Current period's inventory layer 40,000
$ 40,000 x 71.21% 28,484
Estimated closing inventory at cost 328,484
Note: Cost-to-retail percentage (Last year) = 300,000/450,000 = 66.67%

Cost-to-retail percentage (Current year) = 883,000/1,240,000 = 71.21%
E 9-3: Lower of Cost or Market
1.
Tatum Company
Calculation of Inventory
as at 31st December, 2013
(As per LCM Rule applied to individual products)
Product
Cost
$
(1)
Net Realizable
Value
$
(2)
Inventory Value
[Lower of (1) and (2)]
101 120,000 100,000 100,000
102 90,000 110,000 90,000
103 60,000 50,000 50,000
104 30,000 50,000 30,000
Value of Inventory as on 31st Dec, 2013: 270,000
2.
Tatum Company
Calculation of Amount of Loss due to Inventory Written down
Product
Cost
$
(1)
Inventory Value
$
(2)
Amount of Loss
(1-2)
101 120,000 100,000 20,000
102 90,000 90,000 -
103 60,000 50,000 10,000
104 30,000 30,000 -
Total Loss: 30,000

E 9-3: Lower of Cost or Market (US GAAP)
1.
Tatum Company
Calculation of Inventory
as at 31st December, 2013
(As per LCM Rule applied to individual products)
(under US GAAP)
Product
Replacement
Cost
$
(1)
Net
Realizable
Value
$
(2)
NRV- Normal
Profit
(3)
Designated
Market Price
(4)
[Mid Value of (1),
(2) & (3)]
Cost Price
$
(5)
Value of
Inventory
[Lower of (4)
and (5)]
101 110,000 100,000 70,000 100,000 120,000 100,000
102 85,000 110,000 87,500 85,000 90,000 85,000
103 40,000 50,000 35,000 40,000 60,000 40,000
104 28,000 50,000 42,500 42,500 30,000 30,000
Value of Inventory as on 31st Dec, 2013: 255,000
2.
Tatum Company
Calculation of Amount charged to Profit & Loss Account
due to Inventory Written down
Product
Cost
$
(1)
Inventory
Value
$
(2)
Amount to be
charged to P&L
Account
(1-2)
101 120,000 100,000 20,000
102 90,000 85,000 5,000
103 60,000 40,000 20,000
104 30,000 30,000 -
Total Loss: 45,000

Journal Entries for Inventory Written down
Particulars Debit ($) Credit ($)
Inventory Written-down 45,000
To Inventory Account 45,000
Profit & Loss Account 45,000
To Inventory Written-down 45,000
The inventory that is written down has been transferred to the statement of profit and loss account.

Reference
Venter, H. (2016). Digital currency–A case for standard setting activity. A perspective by the Australian
Accounting Standards Board (AASB) http://www. aasb. gov.
au/admin/file/content/c/AASB_ASAF_DigitalCurrency. pdf.