FINANCIAL ACCOUNTING PRINCIPLES
Assessment 2: Adjusting Entries, Inventory, and Cost of Goods Sold
Use this worksheet to complete the following two exercises for Assessment 2. Refer to the instructions in the course for submitting your assessment.
Exercise 2-1
For this exercise, use the following fiscal year-end unadjusted trial balance for the Bigelow Company.
Note: Rent and salary expenses are divided equally between general/administrative and selling activities. Bigelow uses a perpetual inventory system.
BIGELOW COMPANY
Unadjusted Trial Balance
April 30, 2012 (Fiscal year-end)
Debit Credit
Cash $2,150
Merchandise inventory 12,100
Store supplies 4,600
Prepaid insurance 2,100
Store equipment 42,350
Accumulated depreciation—Store equipment $12,000
Accounts payable 8,700
Common stock 4,500
Retained earnings 25,400
Dividends 1,800
Sales 108,500
Sales discounts 950
Sales returns and allowances 1,750
Cost of goods sold 36,300
Depreciation expense—Store equipment 0
Salaries expense 32,500
Insurance expense 0
Rent expense 13,800
Store supplies expense 0
Advertising expense 8,700 _______
Totals $159,100 $159,100
1. Prepare adjusting journal entries for the following:
a. $1,700 of store supplies remaining at the end of the fiscal year.
b. $1,800 of expired insurance for the fiscal year (administrative expense).
c. $1,250 depreciation expense on store equipment for the fiscal year (selling expense).
d. $11,200 of merchandise inventory remaining at the end of the fiscal year (based on a physical count to estimate shrinkage).
Adjustment (a):
Supply Expense 2900
Supplies 2900
Adjustment (b):
Insurance Expense 1800
Prepaid Insurance 1800
Adjustment (c):
Depreication Equipment 1250
Account Depreciation 1250
Adjustment (d):
COG 900
Inventory 900
2. Prepare a fiscal year 2012 multiple-step income statement. For distinguished performance, prepare both multiple- and single-step income statements.
BIGELOW COMPANY
Income Statement
For Year Ended April 30, 2011
[Create the 2011 multiple-step income statement here.]
Bigelow Company
Multistep Income Statement
For Year Ended April 30, 2011
Revenue
Sales Revenue $108,500
Less: Sales Return & Allowance $2,700
Less: COG $36,300
Gross Profit $69,500
Less: Selling & Admin Expenses ($55,000)
Net Income $14,500
Prepare a fiscal year 2012 single-step income statement.
BIGELOW COMPANY
Income Statement
For Year Ended April 30, 2011
[Create the 2011 single-step income statement here.]
Bigelow Company
Single Step Income Statement
Year end April 30, 2011
Revenue
Sales Revenue $108,500
Less: Sales Returns ($2,700)
Total Revenue $105,800
Expenses
Advertising Expense $8,700
COG $36,300
Rent Expense $13,800
Salary & Wages $32,500
Total Expenses $91,300
Net Income $14,500
3. Compute the following ratios as of April 30, 2012.
a. Current ratio.
Current Asset 20,950 2.41
Current Liability 8,700
2150+12100+4600+2100/8700=2.41:1
b. Acid test ratio.
Current Asset Inventory 8,850 1.02
Current Liability 8,700
2150+12100+4600+2100-12100/8700=1.02:1
4. For distinguished performance, compute the gross margin ratio.
69500/105800x100=65.69
Gross Margin Ratio = Gross Profit = 69, 500 which is 65.69%
Net Sales 105,800
Exercise 2-2
The following A. B. Murphy Company data show purchase and sales transactions for the month of April. A. B. Murphy uses a perpetual inventory system.
Date Activities Units Purchased
(at cost) Units Sold
(at retail)
Apr 1 Beginning inventory 065 units @ $40/unit
Apr 8 Purchase 225 units @ $45/unit
Apr 12 Sales 235 units @ 75/unit
Apr 19 Purchase 050 units @ $50/unit
Apr 23 Purchase 125 units @ $55/unit 0
Apr 27 Sales ________ 95 units @ 80/unit
Totals 465 units 330 units
Compute the following:
1. Cost of (1) goods available for sale and (2) number of units for sale.
65x40+225x40+225x45+50+12x55=22,100
2. Number of units in ending inventory.
135
3. Cost assigned to ending inventory, using any three of the following four methods. Compute costs using all four methods for distinguished performance. Round per unit costs to three decimal places and inventory balances to the nearest dollar.
a. FIFO.
b. LIFO.
c. Weighted average.
d. Specific identification (see note below).
FIFO Perpetual
Date Goods Purchased Cost of Goods Sold Inventory Balance
Apr 1 2600 2600
Apr 8 7650 7650
Apr 19 2500 2500
Apr 23 6825 6825
Apr 27 6000 6000
LIFO Perpetual
Date Goods Purchased Cost of Goods Sold Inventory Balance
Weighted Average Perpetual
Date Goods Purchased Cost of Goods Sold Inventory Balance
Specific Identification
Note: The April 12 sale comprised 55 units from beginning inventory and 180 units from the April 8 purchase. The April 27 sale comprised 30 units from the April 19 purchase and 65 units from the April 23 purchase.
Date Goods Purchased Cost of Goods Sold Inventory Balance
4. Gross profit, using FIFO, LIFO, weighted average, and specific identification.
FIFO LIFO Weighted
Average Specific
Identifi-cation