Question

Heart of the City Electrical Supplies are merchandisers of household fixtures & fittings. The business began the last quarter of 2017 (October to December) with 25 Starburst Wall Clocks at a total cost of $153,000. The following transactions took place during the quarter. October 10 100 clocks were purchased on account at a cost of $6,225 each. In addition, Heart paid $120 cash on each clock to have the inventory shipped from the vendor’s warehouse to their warehouse October 31 During the month 90 clocks were sold at a price of $8,300 each. (20 of these clocks sold were on account to a long-standing customer of the business) November 1 A new batch of 60 clocks was purchased at a total cost of $406,500 November 10 5 of the clocks purchased on November 1 were returned to the supplier, as they were damaged November 30 The sales for November were 58 clocks which yielded total sales revenue of $428,000 December 2 Owing to increased demand, a further 110 clocks were purchased at a cost of $7,400 each and these were subject to a trade discount of 2% each. December 6 William Paul, a customer to whom 8 clocks were sold at the start of the first business day in November, returned 2 of the clocks, as they did not match his specifications. December 31 117 clocks were sold during December at a unit selling price of $9,220. December 31 An actual inventory count was carried out which revealed that there were 22 Starburst wall clocks in the store room. Unless otherwise stated, assume that all purchases are on account and all sales are for cash. Required: i) Prepare a perpetual inventory record for this merchandise, using the last in, first out (LIFO) method of inventory valuation, to determine the company’s cost of goods sold for the quarter and the value of ending inventory. ii) Given that selling & distribution and administrative costs for the quarter were $96,800 and $134,400 respectively, prepare an income statement for Heart of the City Electrical Supplies for the period ended December 31, 2017 iii) State the journal entries necessary to record the transactions on October 10 and October 31, assuming the company uses a: -Periodic inventory system -Perpetual inventory system

Answer 1