1. Barnes and Noble had the following transactions during July of 2012:
July 5: Sold $20,000 worth of books to Kruger Books on account for $25 each. Terms 2/10, net 30. The books cost Barnes and Noble $15 each. Barnes and Noble uses a perpetual inventory system.
July 10: 50 of the books were returned by Kruger Books because it received the wrong books.
July 25: Kruger Books pays for the books.
Required:
A. Prepare the journal entries for Barnes and Noble for the transactions above.
B. Calculate the gross profit for Barnes and Noble.
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Barnes and Noble
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Date
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Description
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Debit
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Credit
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July 5
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Cost of Merchandise Sold
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20,000
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Merchandise Inventory
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20,000
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July 10
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Merchandise Inventory
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1,250
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Cost of Merchandise Returned
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1,250
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July 25
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Accounts Receivable
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18,350
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Sales
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18,350
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Gross Profit=
2. Marshall Fields department store has the following account balances on December 31, 2012:
Cash $3,809
Total operating expenses $3,552
Accounts payable $3,538
Owner's equity $5,308
Long-term liabilities $971
Merchandise Inventory $391
Cost of Merchandise Sold $20,047
Other assets (long-term) $3,025
Other current liabilities $1,654
Property and equipment, net $765
Net sales revenue $25,265
Other revenues $873
Accounts receivable $2,608
Required: Prepare a multi-step income statement.
3. Mike's Beans had the following perpetual inventory records for September for a coffee maker:
September 1: Beginning inventory 45 units; $35 unit cost
September 6: Sold 30 units at $55 each
September 8: Purchased 85 units at $40 each
September 17: Sold 40 units at $55 each
September 30: Sold 50 units at $55 each
Required:
A. Calculate ending inventory, cost of merchandise sold and gross profit using the FIFO method.
B. Calculate ending inventory, cost of merchandise sold and gross profit using the LIFO method.
C. Calculate ending inventory, cost of merchandise sold and gross profit using the average cost method.
D. Which inventory costing method provides the highest Cost of Merchandise Sold in a period of rising costs? Why?
E. Why do many firms prefer to use FIFO? Why do many firms prefer to use LIFO?
4. Bordon gathered the following information for inventory at December 31, 2012:
Inventory item #XP101; Quantity 100; Unit Cost $50; Market (replacement cost) $49
Inventory item #CD99; Quantity 60; Unit Cost $50; Market (replacement cost) $55
Inventory item #MO45; Quantity 40; Unit Cost $60; Market (replacement cost) $73
Inventory item #LS86; Quantity 10; Unit Cost $40; Market (replacement cost) $43
Inventory item #MS82; Quantity 70; Unit Cost $100; Market (replacement cost) $90
Required:
A. Calculate the value of inventory using the lower of cost or market.
B. Prepare the journal entry to write down the inventory.
5. The following are the accounts and their balances alphabetically listed for Jim Hutta, Orthodontist, on December 31, 2012. (Note: this is a service business):
Accounts Payable $34,700
Accounts Receivable $41,500
Accumulated Depreciation -- Building $47,300
Accumulated Depreciation -- Equipment $7,700
Building $55,900
Cash $3,400
Depreciation expense $1,900
Jim Hutta, Capital $38,300
Equipment $24,200
Fee Revenue $71,100
Insurance Expense $600
Notes Payable -- Long Term $3,200
Inventory $2,300
Other Current Liabilities $1,100
Prepaid Insurance $600
Prepaid Rent $4,700
Salary Expense $17,800
Salary Payable $2,400
Supplies $3,800
Unearned Fee Revenue $1,700
Required:
1. Prepare a classified balance sheet as of December 31, 2012 in good form.
2. Explain why readers of financial statements might prefer a classified balance sheet to a regular balance sheet.