The Board Shop, owned by Andrew John, sells skateboards in the summer and snowboards in the winter. The shop has an August 31 fiscal year end and uses a perpetual inventory system.
During August, the last month of the fiscal year, the company had the following transactions:
Aug. 1 Paid $1,650 for August’s rent (record in Rent Expense)
2 Paid $6,500 owing on account
4 Sold merchandise costing $7,900 for $12,260 cash
5 Purchased merchandise on account from Orange Line Co., FOB shipping point, for $24,500
5 Paid freight charges of $500 on merchandise purchased from Orange Line Co. (Use merchandise inventory to record charges)
8 Purchased supplies on account for $345
9 Refunded a customer $425 cash for returned merchandise. The merchandise had cost $265 and was returned to inventory
10 Sold merchandise on account to Spider Company for $15,750, terms 2/10, n/30, FOB shipping point. The merchandise had a cost of $9,765.
11 Paid Orange Line Co. for half of the merchandise purchased on Augsut 5.
12 Spider Company returned $750 of the merchandise it purchased. Board Shop issued Spider a credit memo. The merchandise had a cost of $465 and was returned to inventory.
15 Paid salaries, $3,100
19 Spider Company paid the amount owing
21 Purchased $9,900 of merchandise from Rainbow Option Co. on account, terms 2/10, n/30, FOB destination.
23 Returned $800 of the merchandise to Rainbow Option Co. and received a credit memo.
24 Received $525 cash in advance from customers for merchandise to be delivered in September.
30 Paid salaries, $3,100.
30 Paid Rainbow Option Co. the amount owing.
31 Andrew John withdrew $4,800 cash.
Adjustment and additional data:
A count of supplies on August 31 shows $755 on hand. (The Supplies account had a debit balance of 4,095 before adjustment)
The equipment has an estimated eight-year useful life. (No depreciation has been recorded so far this year)
An analysis of the Unearned Revenue account shows that $3,750 has been earned by August 31. A corresponding $2,325 for Cost of Goods Sold will also need to be recorded for these sales. (The Unearned Revenue account has a credit balance of $5,205 before adjustment)
The note payable carries a 5% interest rate. You need to update only for interest accrued in August.
A count of the merchandise on hand at the end of August shows $76,560 of inventory on hand. (The Merchandise Inventory account has a debit balance of $81,108, before adjustment)
Record the August transactions
Record the adjustments for August
Using the adjusted trial balance located below, assemble a multi-step income statement, statement of owner’s equity and classified balance sheet
The Board Shop
Adjusted Trial Balance
August 31, 20–
Merchandise Inventory 76,560.00
Accumulated Depreciation – Equipment $22,125.00
Accounts Payable 18,745.00
Interest Payable 175.00
Unearned Revenue 1,455.00
Notes Payable 42,000.00
A. John, Capital 58,400.00
A. John, Drawings 57,600.00
Rent Revenue 1,200.00
Sales Returns and Allowances 12,595.00
Sales Discounts 300.00
Cost of Goods Sold 322,493.00
Depreciation Expense 8,850.00
Salaries Expense 74,400.00
Supplies Expense 3,340.00
Rent Expense 19,800.00
Insurance Expense 4,140.00
Interest Expense 2,100.00
The following schedule shows purchase/sales information of the X57 snowboard at The Board Shop, for the month of September:
Date Transaction Units Unit Purchase Price Unit Sales Price
Sept 1 Beginning Inventory 20 $150
10 Purchase 10 $200
12 Sale (13) $500
13 Purchase 15 $225
25 Sale (21) $525
27 Purchase 20 $230
Using an inventory schedule, calculate the cost of goods sold and ending inventory using both FIFO and average cost, assuming The Board Shop uses a perpetual inventory system (Round the average cost per unit to three decimal places).
Imagine if you calculated the amount of ending inventory to be $5,000, but new technology in snowboards makes the net realizable value of these snowboards only $4,500. Prepare the journal entry to adjust the inventory to LCNRV.