Question

In: Accounting

Kevin Rocks is a wholesale distributor of automotive replacement parts. Initial amounts taken from Kevin Rocks’...

Kevin Rocks is a wholesale distributor of automotive replacement parts. Initial amounts taken from Kevin Rocks’ accounting records are as follows:

Inventory on December 31, 2016 (based on physical count of goods in Kevin Rocks warehouse on December 31, 2016)

$        1,150,000

Sales in 2016

$        9,000,000

Accounts Payable at December 31, 2016

Vendor

Terms

Amount

Baker Company

2% 10 days, net 10

$ 265,000

Dolly Company

Net 30

$210,000

Eager Company

Net 30

$300,000

Full Company

Net 30

$225,000

Greg Company

Net 30

$1,000,000

Additional information is as follows:

1) Parts held on consignment from Charlie to Kevin Rocks, the consignee, amounting to $155,000 were included in the physical count of goods in Kevin Rocks’ warehouse on December 31, 2016, and in accounts payable at December 31, 2016.

2) $22,000 of parts which were purchased from Full were paid for in December 2016, were sold in the last week of 2016 and appropriately recorded as sales of $28,000. The parts were included in the physical count of goods in Kevin Rocks’ warehouse on December 31, 2016, because the parts were on the loading dock waiting to be picked up by customers.

3) Parts in transit to customers on December 31, 2016, shipped FOB shipping point on December 28, 2016, amounted to $34,000. The customers received the parts on January 7, 2017. Sales of $40,000 to the customers for the parts were recorded by Kevin Rocks on January 3, 2017.

4) Retailers were holding $210,000 at cost ($250,000 at retail) of goods on consignment from Kevin Rocks at their stores on December 31, 2016.

5) Goods were in transit from Greg to Kevin Rocks on December 31, 2016. The cost of goods was $25,000 and they were shipped FOB shipping point on December 29, 2016.

6) A quarterly freight bill in the amount of $2,000 specifically relating to merchandise purchases in December 2016, all of which was still in the inventory at December 31, 2016, was received on January 4, 2017. The freight bill was not included in either the inventory or in accounts payable at December 31, 2016.

7) All of the purchases from Baker occurred during the last 7 days of the year. These items have been recorded in accounts payable and accounted for in the physical inventory at cost before discount. Kevin Rocks’ policy is to pay invoices in time to take advantage of all cash discounts, adjust inventory accordingly, and record accounts payable, net of cash discounts.

Required:

Prepare a schedule of adjustments to the initial amounts of inventory, accounts payable, and sales. Show the effect, if any, of each of the transactions separately and indicate if the transactions would have no effect on the amounts.

Inventory Accounts Payable Sales
Initial Amounts $ 1,150,000 $        1,000,000 $ 9,000,000
Adjustments
Increase (decrease)
1
2
3
4
5
6
7
Total Adjustments $                  - $                        - $                  -
Adjusted amounts $ 1,150,000 $        1,000,000 $ 9,000,000

I need help.I included the template needed for the assignement. Thank you. (Edited)

Solutions

Expert Solution

Inventory Accounts Sales
Payable
Initial Amounts: 1150000 1000000 9000000
Adjustments :
Increase / (Decrease)
1 -155000
2 -22000
3 40000
4 210000
5 25000
6 2000 2000
7 -5300 -5300
Total adjustments 54700 -3300 40000
Adjusted Amounts 1204700 996700 9040000

Working:

1 Inventory held on consignment will be recorded in the books of the
consignor and hence should be removed from the inventory of Kevin Rocks.
2 As the goods have been sold and recorded as such, shall be removed from
inventory.
3 Since the sale is FOB shipping point, sale should be recorded as at Dec.31
4 Stock held by the retailers on consignent shall be included in inventory of
Kevin rocks.
5 Goods sent by Greg to Kevin rocks on FOB shipping point, shall be included
in the inventory by Kevin /rocks.
6 Freight bill to be added to the cost of inventory and also to the accounts
payable.
7 The discount amount of $5,300 (2% of $265,000) to be removed from cost of
inventory and also from acounts payable.

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