Assignment
QUESTION 1: The Bhurney Corporation uses a perpetual inventory system that showed $1,250,000 of merchandise inventory at the end of the year, December 31.
Determine the correct inventory amount by preparing a schedule of adjusted inventory based upon the factors listed below. If an item does not require an adjustment, write "No Adjustment" on your schedule.
1. Bhurney held $155,000 of inventory on consignment and included this amount in its year-end inventory.
2. Merchandise costing $22,000 was sold f.o.b. shipping point and excluded from inventory. The goods were in transit to the customer December 31.
3. Merchandise costing $34,000 was shipped f.o.b. shipping point and was received by the customer January 2. Bhurney recorded the sale and reduction of inventory January 2.
4. Some customers were holding goods on consignment for Bhurney that cost $210,000. Since the goods were not in Bhurney's warehouse, they were excluded from inventory.
5. Goods shipped to a customer f.o.b. destination costing $25,000 were in transit December 31 and were not recorded in Bhurney's inventory.
6. A freight bill for $2,000 was received by Bhurney on January 3 for merchandise received December 29 and included in inventory.
QUESTION 2: Selected accounts have the following balances
Debit Credit
Accounts Receivable $100,000
Allowance for Doubtful Accounts $ 2,500
Sales 750,000
Sales Returns & Allowances 40,000
REQUIRED:
1. Prepare the journal entries for estimating bad debts assuming that the following separate assumptions are used (1) 6% of accounts receivable (2) 1% of net sales.
2. Assume instead that the allowance has a debit balance instead of a credit balance of $2,500. Prepare the necessary entries to record bad debts under each of the assumptions in "1." above.
QUESTION 3: ABC values their inventory under the lower of cost or market by individual product. The normal profit percentage is 40% of the selling price. The selling price also includes a 15% sales commission. Determine their total ending inventory.
PRODUCT #1 #2 #3
Quantity 1,000 600 200
Unit Information:
Cost: $10 $3 $7
Replacement Cost: $12 $2 $4
Selling Price: $16 $8 $6
QUESTION 4: Determine the inventory that approximates average cost, lower of cost or market based on the following:
Cost Retail
Merchandise Inventory $ 190,000 $ 280,000
Purchases 600,000 840,000
Freight In 8,000
Net Markups 20,000
Net Markdowns 4,000
Net Sales 800,000