Question

Corona Corp. is a multi-product beverage company. Presented below is information concerning one of its products, COVID-20 spritz for 2020:

Date		Transactions             Quantity		Price/unit
1/1		Beginning Inventory 1,000 units		$12
2/10		Purchases                   2,000		18
2/20		Sale                             2,500		30
11/8		Purchases                   3,000		23
12/9		Sales                           2,000		33

The company made all purchases on account. By the end of the year, it has not paid for the 11/8 purchases.

The company has a perpetual inventory system and elected to use the average cost method to calculate its inventory.

Additional information is as follows:

1. Physical count of the goods at the end of 2020 indicated $25,000 was actually on hand.
2. Consignment goods of $1,000 from Bud Light Corporation, the consignor, were included in the physical count of Corona Corp. at the end of 2020 and in accounts payable at December 31, 2020.   
3. Wine spritzers costing $11,000 were purchased by a customer f.o.b. shipping point on December 31, 2020. The sales price was at $17,000 and the customer paid in cash. However, the goods were still included in the physical count at the end of 2020 because the inventory were sitting at the loading dock waiting to be shipped due to social distancing requirements. No journal entry related to this transaction has been recorded so far.
4. Inventory returned by customer amounted to a cost of $7,500. This inventory was held for inspection and were excluded from the physical count at year-end. On January 10, 2021, the inventory was inspected and was returned to the warehouse where inventory is kept. Credit memos totaling $12,000 were issued to the customer on the same date.
5. Goods shipped to customer f.o.b. destination on December 28, 2020 were still in transit at December 31 and had a cost of $12,000. Upon notification of receipt by customer on January 5, 2021, Corona Corp. recorded the sales for $22,000. No journal entry has been recorded so far.
6. New purchases were in transit from a vendor to Corona Corp. on December 31 for 1,000 units at a unit price of $24. The goods were shipped f.o.b. shipping point on December 28, 2020. No journal entry has been recorded so far.
7. In January 2021, it was discovered that an invoice covering purchases of $15,000 related to the November purchases was entered twice in the accounting periods.

Required:

1. Fill in the schedule of adjustments below. You must first determine the initial ending inventory, sales and accounts payable for Corona Corp. Then for each of the seven transactions, show the effect, if any, separately. If the transactions have no effect on the amount shown, state NONE.

	Inventory	Accounts Payable	Net Sales
Initial Amount
Adjustment increase (decrease)
1
2
3
4
5
6
7
Total adjustments
Adjusted amounts

2. Briefly, explain each adjustment made above

Answer 1

Solution of the above problem is as under:

Calculation of Ending Inventory using Perpetual Inventory System:

Date	Particulars/Transactions	Units	Units Cost ($)	Total ($)	Balance (in Units)	Balance (Amount) ($)
01-Jan	Beginning Inventory	1000	12	12000	1000 Units @ 12	12000
10-Feb	Purchase	2000	18	36000	2000 Units @ 18	48000
20-Feb	Sale	2500	16	40000	500 Units @ 16	8000
08-Nov	Purchase	3000	23	69000	500 Units @ 16 3000 Units @ 23	77000
09-Dec	Sale	2000	22	44000	1500 Units @ 22	33000
Calculation of Average Cost
Average Cost: Average cost is calculated by dividing Total Inventory Cost with the No of Inventory (before sale)
Average Cost for sale made on 20/02 is	Total Inventory Cost ($)	48000	$ 16
	Total No of Inventory (Units)	3000
Average Cost for sale made on 09/12 is	Total Inventory Cost ($)	77000	$ 22
	Total No of Inventory (Units)	3500
Calculation of Value of Ending Inventory using Perpetual Method under Average cost
Value of Ending inventory	1500 Units @ $ 22	$ 33000