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