Question

Problem 6-6A Record transactions using a perpetual system, prepare a partial income statement, and adjust for the lower of cost and net realizable value (LO6-2, 6-3, 6-4, 6-5, 6-6)

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At the beginning of October, Bowser Co.’s inventory consists of 64 units with a cost per unit of $36. The following transactions occur during the month of October

October		4		Purchase 116 units of inventory on account from Waluigi Co. for $50 per unit, terms 2/10, n/30.
October		5		Pay cash for freight charges related to the October 4 purchase, $672.
October		9		Return 20 defective units from the October 4 purchase and receive credit.
October		12		Pay Waluigi Co. in full.
October		15		Sell 146 units of inventory to customers on account, $11,680. [Hint: The cost of units sold from the October 4 purchase includes $50 unit cost plus $7 per unit for freight less $1 per unit for the purchase discount, or $56 per unit.]
October		19		Receive full payment from customers related to the sale on October 15.
October		20		Purchase 86 units of inventory from Waluigi Co. for $56 per unit, terms 3/10, n/30.
October		22		Sell 86 units of inventory to customers for cash, $6,880.

1. Assuming that Bowser Co. uses a FIFO perpetual inventory system to maintain its inventory records, record the transactions. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
     

2. Suppose by the end of October that the remaining inventory is estimated to have a net realizable value per unit of $30. Record any necessary adjustment for lower of cost and net realizable value. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

3. Prepare the top section of the multiple-step income statement through gross profit for the month of October after the adjustment for lower of cost and net realizable value

Answer 1

Computation of Closing Inventory
Date	Particulars	Computations	Amount
01-Oct	Opening Inventory	(64 units*$36 per unit)	$      2,304
04-Oct	Add: Purchase of Inventory from Waluigi & Co.	(116 units * $50 per unit) + $6 per unit freight	$      6,496
09-Oct	Less: Return 20 defective units	(20 units * $50 per unit)	$      1,000
15-Oct	Less: Sale of units to customers	(146 Units = 64 units @$36 per units and 82 units @ $56 per unit)	$      6,896
20-Oct	Add: Purchase of Inventory from Waluigi & Co.	(86 units * $56 per unit)	$      4,816
22-Oct	Less: Sale of units to customers	(86 units= (14 units @$56 per units and 72 Units @$56 per unit)	$      4,816
31-Oct	Closing Inventory as per FIFO	(64+116-20-146+86-86) units @ $56 per unit	$          784
31-Oct	Closing Inventory as per Realizable value *	14 units @ $30 per unit	$          420
	Loss to be recorded in income statement	($784-$420)	$          364
* inventory is to be recorded at lower of Cost or Net Realizable Value

Income Statement
Date	Particulars	Amount
Income
Sales
19-Oct	Sale of 146 units	$ 11,680
22-Oct	Sales of 86 units	$   6,880
	Total Sales	$ 18,560
A. Income Total		$18,560
Expenses
04-Oct	Purchase of Inventory                      $5800 Less: Return of inventory                $1000	$   4,800
05-Oct	Frieght charges	$      672
09-Oct	Purchase of Inventory (86 units)	$   4,816
31-Oct	Loss on value of inventory	$      364
B. Expenses Total		$10,652
C. Profit/ (Loss) for the month		$   7,908