Boston Bait Shop uses a periodic inventory system. At December 31, year 2, the accounting records include the following information:
A complete physical inventory was taken at December 31. Year 2 indicates merchandise costing $3000 remains in stock.
a. how are the amounts of beginning and ending inventory determined?
b. Compute the amount of cost of goods sold in year 2.
c. Prepare two closing entries at December 31. Year 2: the first to create a cost of goods sold account with the appropriate balance and the second to bring the inventory account up to date.
d. Prepare a partial income statement showing the shop's gross profit for the year.
e. Describe why a company such as Boston Bait Shop would use a periodic inventory system rather than a perpetual inventory system.
ABC uses a periodic inventory system, and the ending inventory for each year is determined by taking a complete physical inventory at year-end. A physical count was taken on December 31, 2014, and the inventory on-hand at that time totaled $75,000, which reflects historical cost. Record the 2014 Cost of Goods Sold and the 12/31/14 Inventory adjustment. Additionally, ABC adheres to GAAP by recording ending inventory at the lower of cost and net realizable value at a total inventory level. A review of inventory data further indicated that the current retail sales value of the ending inventory is $110,000 and estimated costs of completion and shipping is 15% of retail. Be sure to make an additional adjustment, if necessary, to properly value ending inventory using the Loss and Allowance methodology. For Income Statement presentation purposes, be sure to use the Loss Method for accounting for adjustments of inventory to market value.
Scoresby Inc. tracks the number of units purchased and sold throughout each year but applies its inventory costing method at the end of the year as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the annual accounting period, December 31.
Transactions
Units
Unit Cost
a. Inventory, Beginning
1,500
$
28
For the year:
b. Purchase, March 5
7,500
29
c. Purchase, September 19
3,500
31
d. Sale, April 15 (sold for $73 per unit)
2,200
e. Sale, October 31 (sold for $76 per unit)
6,500
f. Operating expenses (excluding income tax expense), $398,000
Prepare an income statement that shows the FIFO method.
