Question

Bianca has the following inventory, purchases, and sales data for the month of March. The physical inventory count on March 31 shows 500 units on hand. Inventory: March 1 200 units @ $4.00 $ 800 Purchases: March 10 500 units @ $4.50 2,250 March 20 400 units @ $4.75 1,900 March 30 300 units @ $5.00 1,500 Sales: March 15 500 units March 25 400 units Required: 1. Under a periodic inventory system, determine the cost of inventory on hand at March 31 and the cost of goods sold for March under (a) FIFO and (b) average-cost.

2. Under a perpetual inventory system, determine the cost of inventory on hand at March 31 and the cost of goods sold for March under (a) FIFO and (b) average-cost.

On December 31, 2019, Regent plc rendered services to Begin Group at an agreed price of £102,049, accepting £40,000 down and agreeing to accept the balance in four equal installments of £20,000 receivable each December 31. An assumed interest rate of 11% is imputed. Present value of an ordinary annuity of 1 for 4 years is 3.10245 for 11%. Required: Prepare the entries that would be recorded by Regent plc for the sale and for the receipts and interest on the following dates. (Assume that the effective-interest method is used for amortization purposes.)

(a) December 31, 2019.

(b) December 31, 2020.

(c) December 31, 2021.

(d) December 31, 2022.

(e) December 31, 2023

Answer 1

Q2 :

Answer :

(a)	December 31, 2019
	Cash................................................................................................		40,000
	Notes Receivable............................................................................		62,049
	Service Revenue.................................................................			102,049
	To record revenue at the present value of the     note plus the immediate cash payment:
	PV of £20,000 annuity @ 11% for                 4 years (£20,000 X 3.10245)...............................	£ 62,049
	Down payment.......................................................	40,000
	Capitalized value of services..................................	£102,049

(b)	December 31, 2020
	Cash.......................................................................................................		20,000
	Notes Receivable.......................................................................			20,000
	Notes Receivable...................................................................................		6,825
	Interest Revenue........................................................................			6,825

Schedule of Note Discount Amortization
Date		Cash Received		Interest Revenue		Carrying Amount of Note
12/31/19		—		—		£62,049
12/31/20		£20,000		£6,825a		48,874b
12/31/21		20,000		5,376		34,250
12/31/22		20,000		3,768		18,018
12/31/23		20,000		1,982		—

                      a£6,825 = £62,049 X 11%

                      b£48,874 = £62,049 + £6,825 – £20,000

(c)	December 31, 2021
	Cash...................................................................................		20,000
	Notes Receivable...................................................			20,000
	Notes Receivable...............................................................		5,376
	Interest Revenue...................................................			5,376
(d)	December 31, 2022
	Cash...................................................................................		20,000
	Notes Receivable...................................................			20,000
	Notes Receivable...............................................................		3,768
	Interest Revenue...................................................			3,768
(e)	December 31, 2023
	Cash...................................................................................		20,000
	Notes Receivable...................................................			20,000
	Notes Receivable...............................................................		1,982
	Interest Revenue...................................................

Q1 :

ANSWER :

1.

2.

FIFO:

Cost of Inventory = $2450

Cost of Goods Sold = $4000

LIFO:

Cost of Inventory = $2300

Cost of Goods Sold = $4150

Average cost method:

Cost of Inventory = $2423.81

Cost of Goods Sold = $4026.19

Explanation :

Opening Stock = $800

Total Purchases for month of March = 2250+1900+1500 = $5650

Cost of Goods Sold = Opening Stock + Purchases - Closing Stock

FIFO:

Under this method, old stock rates will be used first for calculation of sales and closing stock.

Cost of Inventory = $2450

Cost of Goods Sold= 800 + 5650 - 2450 = $4000

LIFO:

Under this method, new purchases rates will be used first for calculation of sales and closing stock.

Cost of Inventory = $2300

Cost of Goods Sold= 800 + 5650 - 2300 = $4150

Average Cost Method:

Under this method, closing stock is valued on average rate per unit of inventory. Sales and closing stock both will be valued on the average rate calculated.

Cost of Inventory = $2423.81

Cost of Goods Sold= 800 + 5650 - 2423.81 = $4026.19