Question

(A)

On December 1, Bob waldo started an auto repair shop, Waldo’s Quality automotive. The following transactions occurred during December:

12/01 Waldo contributed $70,000.00 cash to the business in exchange for common stock.

12/01 Paid 1,750.00 for a five -month insurance policy, starting December 1^st.

12/01 Purchased $12,000.00 of equipment, paying cash

12/09 Paid $20,000.00 cash to purchase land

12/10 Purchased office supplies on account for $2,800.00

12/19 Borrowed $15,000.00 from the bank. Waldo signed a note payable. The note is due in 5 years.

12/22 Paid 1,300.00 for advertising expenses

12/26 Paid 900.00 on account

12/28 The business received a $280.00 bill for utilities. The bill is to be paid in January.

12/31 Revenues earned during the month included $16,000.00 in cash, and $3,600.00 on account.

12/31 The business received $1440.00 for auto screening services to be performed next month.

12/31 Paid cash dividends of $5,500.00 to stockholders.

12-31 Paid employees’ salaries $3,800.00, and Building rent #1,200.00, record as a compound entry.

Adjustment data:

1. Office supplies used during the month, $1,800.00
2. Depreciation for the month, $200.00
3. One month of insurance has expired
4. Accrued interest expense, $75.00

Use the information furnished above to:

Write journal entries (10 points)

Prepare an Income statement (5 points)

Prepare a statement of retained earnings (5 points)

Prepare the balance sheet (10 points)

Prepare closing entries (10 points)

(B)

Exercise World began January with merchandise inventory of 90 crates of vitamins that cost a total of $5,850.00. During the month, Exercise World purchased and sold merchandise on account as follows:

Jan 2 Purchase 130 crates @ $76 each

       5 Sale 140 crates @ $ 100 each

     16 Purchase 170 crates @ 86 each

Calculate the cost of goods sold, using: LIFO, FIFO, and Weighted average methods (20 points)

Answer 1

SOLUTION B

FIFO METHOD
	Receipts	Issues	Balance
Date	Units	Rate ($)	Amount($)	Units	Rate	Amount($)	Units	Rate	Amount($)
Opening	90.00	65.00	5,850.00				90.00	65.00	5,850.00
Jan-02	130.00	76.00	9,880.00				90.00	65.00	5,850.00
							130.00	76.00	9,880.00
Jan-05				90.00	65.00	5,850.00
				50.00	76.00	3,800.00	80.00	76.00	6,080.00
Jan-16	170.00	86.00	14,620.00				80.00	76.00	6,080.00
							170.00	86.00	14,620.00

Calculation of cost of goods sold
	particulars	Amount ($)
a	opening stock	5,850.00
b	Purchases	24,500.00
c	closing stock	20,700.00
d	COGS	9,650.00

LIFO METHOD
	Receipts	Issues	Balance
Date	Units	Rate ($)	Amount($)	Units	Rate	Amount($)	Units	Rate	Amount($)
Opening	90.00	65.00	5,850.00				90.00	65.00	5,850.00
Jan-02	130.00	76.00	9,880.00				90.00	65.00	5,850.00
							130.00	76.00	9,880.00
Jan-05				130.00	76.00	9,880.00
				10.00	65.00	650.00	80.00	65.00	5,200.00
Jan-16	170.00	86.00	14,620.00				80.00	65.00	5,200.00
							170.00	86.00	14,620.00

Calculation of cost of goods sold
	particulars	Amount ($)
a	opening stock	5,850.00
b	Purchases	24,500.00
c	closing stock	19,820.00
d	COGS	10,530.00

Weighted average method
	Receipts	Issues	Balance
Date	Units	Rate ($)	Amount($)	Units	Rate	Amount($)	Units	Rate	Amount($)
Opening	90.00	65.00	5,850.00				90.00	65.00	5,850.00
Jan-02	130.00	76.00	9,880.00				220.00	71.50	15,730.00
Jan-05				140.00	71.50	10,010.00
							80.00	71.50	5,720.00
Jan-16	170.00	86.00	14,620.00				250.00	81.36	20,340.00

Calculation of cost of goods sold
	particulars	Amount ($)
a	opening stock	5,850.00
b	Purchases	24,500.00
c	closing stock	20,340.00
d	COGS	10,010.00

FIFO METHOD ; under this method goods which are bought first are sold first and ending inventory consists of recently bought goods.

LIFO METHOD : Under this method goods which are bought in last are sold first . Ending inventory consists of goods which were bought earlier.

WEIGHTED AVERAGE METHOD ; under this method we calculate per unit cost by cost of goods available for sale by units available for sale.

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