Question

You are engaged to audit the Ferrick Corporation for the year ended December 31, 2018. Only merchandise shipped by the Ferrick Corporation to customers up to and including December 30, 2018, has been eliminated from inventory. The inventory as determined by physical inventory count has been recorded on the books by the company’s controller. No perpetual inventory records are maintained. All sales are made on an FOB–shipping point basis. You are to assume that all purchase invoices have been correctly recorded.

The following lists of sales invoices are entered in the sales journal for the months of December 2018 and January 2019, respectively.

		Sales Invoice Amount			Sales Invoice Date		Cost of Merchandise Sold			Date Shipped
December 2018
a.		$	3,000		Dec. 21		$	2,000		Dec. 31
b.			2,000		Dec. 31			800		Dec. 13
c.			1,000		Dec. 29			600		Dec. 30
d.			4,000		Dec. 31			2,400		Jan. 9
e.			10,000		Dec. 30			5,600		Dec. 29*
January 2019
f.		$	6,000		Dec. 31		$	4,000		Dec. 30
g.			4,000		Jan. 2			2,300		Jan. 2
h.			8,000		Jan. 3			5,500		Dec. 31
*Shipped to consignee.

Required:

Prepare necessary adjusting entries for the following events.

a. Record the adjusting entry for goods shipped on December 31,included in the physical inventory at the end of last fiscal year.

b. Record the sale of merchandise for sales invoice dated December 31, 2018 goods being shipped on December 13, 2018.

c. Record the sale of merchandise on December 29, 2018 goods being shipped on December 30, 2018.

d. Record the reversal of sale for sales invoice dated December 31, 2018 goods being shipped on January 9, 2018.

e. Record the shipment of merchandise to the consignee.

f. Record the sale of merchandise for sales invoice dated December 31, 2019 goods being shipped on December 30, 2019.

g. Record the sale of merchandise for sales invoice dated January 2, 2019 goods being shipped on January 2, 2019.

h. Record the sale of merchandise for sales invoice dated January 3, 2019 goods being shipped on December 31, 2019.

Answer 1

a).Since the goods were shipped on December 31, the sale should be recognized in 2018.

Because the inventory balance at 31 Dec 2018 was included this shipment,

The adjusting entry is

Event	General Journal	Debit	Credit
a	Cost of Merchandise Sold	2,000
	Inventory		2,000

b).This transaction is correctly recorded.

No adjusting entry.

Event	General Journal	Debit	Credit
b.	No Journal Entry Required	-
	No Journal Entry Required		-

c).This transaction is correctly recorded.

No adjusting entry.

Event	General Journal	Debit	Credit
c	No Journal Entry Required	-
	No Journal Entry Required		-

d).As the goods were not delivered to the customers until January 9, it was shown in the physical inventory;

but the sale was recorded in December 2018. Therefore, no adjusting entry is required for inventory,

but a reverse entry is passed for the sale

The adjusting entry should be made

Event	General Journal	Debit	Credit
d	Sales	4,000
	Account Receivable		4,000

e) Since the goods are sold to the consignee,

it should not be considered as sales.

Therefore, a reverse entry is passed to cancel the wrong entry.

Adjusting entries are

Event	General Journal	Debit	Credit
e (i)	Sales	10,000
	Account Receivale		10,000
	Inventory	5,600
	Cost of Goods Sold		5,600
	Goods on Consignment	5,600
	Inventory		5,600

f) Since the shipment was on Dec 30, it was not included in the physical inventory.The sale should be recorded in 2018.

The adjusting entry is:

Event	General Journal	Debit	Credit
f	Account Receivable	6,000
	Sales		6,000

g) This transaction is correctly recorded.

No adjusting entry

Event	General Journal	Debit	Credit
g	No Journal Entry Required	-
	No Journal Entry Required		-

h) Similar to transaction a, the shipment was on Dec 31 so the sales should be recorded in 2018.

Because the inventory balance at 31 Dec 2018 was included this shipment,

the adjusting entry is:

Event	General Journal	Debit	Credit
h	Account Receivable	8,000
	Sales		8,000
	Cost of Merchandise Sold	5,500
	Inventory		5,500