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The correct option of this multiple choice question (mcq) is (c), as in Perpetual Inventory System (PIS), payment of freight on goods sold does not affect Inventory Account (IA). It is freight out which is treated as indirect expense, so it is not the part of production costs or acquisition of merchandise or goods as this cost (freight out) is incurred after the goods sold to deliver the goods at the doorstep of customer’ s destination and not to the warehouse. The entry to record for freight out paid from the point view of company’s business is shown below:                                              Freight Out Exp. a/c  XXX                                                                     ...

The correct option of this multiple choice question (mcq) is (B), as under Perpetual Inventory System (PIS), each time purchases and sales made affect Inventory Account (IA). Separate accounts for purchases, purchases returns & allowances and purchases discounts are not maintained but these accounts are recorded in inventory account. Under perpetual Inventory System, when goods purchased on account, then we debit IA rather than purchases account and credit account. Under this IS, freight in / transportation in are added to inventory account by debited and not in purchases account. In case of goods returned to supplier / vendor (purchases returns), allowances and discounts received from supplier (purchases allowances and purchases discounts), IA and not these accounts are separately recorded. Whenever sales made to customers on account, then cost of goods sold account is debited and IA is credited That is why more detail inventory records are required in this system. The opti...

The correct option of this multiple choice question (mcq) is (A) as proved below: We are given the following accounting data as shown below: Current Assets (CA)= $1,600,000 Current Liabilities (CL) = $750,000 Required New Current Ratio (CR) after making payments to accounts payable = ? We know that current ratio is calculated by using the following formula: Current Ratio = Current Assets / Current Liabilities The entry to record for making payments to accounts payable by Mitchell Corporation is to debit accounts payable account by $350,000 and credit to cash account by $350,000 as shown below:                                                         Accounts Payable a/c $350,000                                                 ...

1. Calculation Of Ending Inventory Here we are required to calculate ending inventory by using FIFO cost method. As we know 80 units on out of 300 units, so we now multiply these units X $5.00 per units as we start to sell 220 units from first 50 units to the next until all the 220 units are sold out in the market. So, ending inventory under FIFO can be calculated as shown below: Ending Inventory = 80 units X $5.00 = $400 Here Cost of Goods Sold = (50 units X $4.00) + (100 units X $4.50) + (70 units X $5.00) = $200 + $450 + $350 = $1,000 We can say that under FIFO, 50 units from beginning inventory, 100 units from October 10 purchases and remaining 70 units from October 20 purchases are utilized. So, the correct option of this multiple choice question (mcq) is (a). All other options (b, c and d) are incorrect choices here. 2. Calculation Of Cost Of Goods Sold Now, we are required to calculate cost of goods sold under LIFO (Last-In, First-Out) costing method. As 80 units on hand at...

Under First-In, First-Out (FIFO) method, we start to sold those items / units which was firstly purchased and then we move forward to the next purchases until all the units are sold. So, here we started to sell the units from June 1 purchases until all 490 units out of 700 units (150 + 200 + 200 + 150) are sold out and then remaining 210 units are used to show ending inventory under FIFO periodic inventory system.       Per Unit Cost For June 1 Purchases = $1,040 / 150 units = $6.93333 Per Unit Cost For June 10 Purchases = $1,560 / 200 units = $7.8 Per Unit Cost For June 15 Purchases = $1,680 / 200 units = $8.4 Per Unit Cost For June 28 Purchases = $1,320 / 150 units = $8.8 Calculation Of Cost Of Goods Sold As 490 units out of 700 units are sold out, so we get the following: 150 units X $6.93333 = $1,040 200 units X $7.8 = $1,560 140 units X $8.4 = $1,176 Cost of Sales or Cost Of Goods Sold (COGS) = $1,040 + $1,560 + 1,176 = $3,776 So, we can say that from June 1 pur...

The correct option of this multiple choice (mcq) is (b), as when the ending inventory (closing stock) was overstated, the Net Income was overstated and cost of sales was understated by $3,500, as closing inventory is deducted from opening inventory plus inventory purchases, in Income Statement for the accounting year 2020. As the net income was overstated by $3,500 so retained earnings increased by $3,500 which also increased the shareholders' equity by $3,500. So, due to the overstating value of ending inventory by $3,500, the shareholders’ equity also overstated by $3,500 on the balance sheet as on 12/31/2020. It is also to be noted that Working Capital (Current Assets minus Current Liabilities) and Current Ratio  (Current Assets / Current Liabilities) also overstated during the period in which the error was made. In the accounting year 2021, the ending inventory of accounting year 2020, became the opening or beginning inventory, which cancelled each other effect. The cost...

Calculation of Cost of Goods Sold (Cost of Sales) And Ending Inventory Under Specific Identification Method (SIM) Cost Of Goods Sold (COGS) can be calculated as shown below: As 100 units sold out of 200 units of January 10 Purchases, i.e., the ending inventory consists of 100 units or 100 units remain unsold, so cos of sales from here is 100 units X $5.00 = $500 As 200 units sold out of 500 units of January 20 Purchases, while unit unsold are 300, so cost of sales is 200 units X $10.00 = $,2000 As 700 units sold out of 800 units of January 30 Purchases, which means 100 units still remain unsold, so COGS is 700 units X $15.00 = $10,500 By adding cost of goods sold incurred from these specific identified units, we get the following: COGS = $500 + $2,000 + $10,500 = $13,000 So, the first correct answer of this multiple choice question (mcq) is (a), i.e., cost of goods sold is $13,000 To calculate Ending Inventory (EI), we use the following formula as shown below: Ending Inventory = U...

1. On 5 th January, inventory purchases is 500 units X $10.00 = $5,000. On 15 th January, purchases is 1,000 units X $15.00 = $15,000. On 25 th January, purchases is 200 units X $20.00 = $4,000 As no units purchased are sold at the end of January, so these become ending inventory. As we know the average unit cost formula, which is shown below: Average Unit Cost = Total Cost of Unsold Units / Total Unsold Units = $5,000 + $15,000 + $4,000 / 500 units + 1,000 units + 200 units = $24,000 / 1700 units = $14.12 per unit cost. So, the correct option of this multiple choice question (mcq) is option (a).   2 . On 1 st November, beginning inventory is 30 units X $6 = $180 On 8 th November, purchases is 120 units X $6.45 = $774 On 17 th November, inventory purchases is 60 units X $6.30 = $378 On 25 th Nov., another purchases of merchandise is 90 units X $6.60 = $594 On 30 th November, ending inventory is calculated under LIFO periodic inventory system a...

The correct option of this multiple choice question (mcq) is (a), as proved below: Here, we need to calculate the ending inventory by using average cost method in which we add the cost of all unsold units (units on hand) and then divide it by sum of unsold units to calculate per unit cost, which is multiplied by number of remaining unsold units. Mathematically, we use the following weighted average cost method as shown below: Weighted Average Cost = Total Cost of All Unsold Units / Total Unsold Units On 1 st August, beginning inventory is 20 units X $10 = $200 On 8 th August, Purchases is 130 units X $15 = $1,950 On 17 th August, sale of 80 units was made, so unsold units remained 70, so ending inventory under perpetual inventory system is calculated as shown below: Weighted Average Cost = $200 + $1,950 / 20 + 130 units = $2,150 / 150 units = $14.33333 per unit cost Ending Inventory = 70 units X $14.33333 = $1,003.3331 On 25 th August, purchased inventory is 30 units X $20 = $...

The correct option of this multiple choice question (mcq) is B, as under the Perpetual Inventory System (PIS), one entry is recorded for sales made for cash / bank or on account / credit and second entry is related cost of goods sold each time a sales occurs. (i) Goods Sold For Cash Or On Account The first entry to record is recorded for sales made either for cash / bank or on account as shown below:   (a) For Cash / Bank (By Check)                                                         Cash a/c / Bank a/c   XXX                                                                                    Sales a/c  XXX     ...

1. The correct option of this multiple choice question is A, as overtime wages incurred in the month of January. When expenses incurred or loss suffered by the business, these are recorded while revenues are recorded when these are earned. Also, revenues must be matched with all those expenses incurred in earning these revenues during the current accounting period, according to Matching Principle . The option B is not correct. The option C is wrong choice as it does not depend upon when the workers received their checks. It depends upon when the overtime wages are expensed. The option D is also not correct as it doesn’t not depend upon when the pay period ends. 2. The correct option is B as proved below: We know that Net Profit Margin Formula is: Net Income / Total Revenue x 100 So, here we need to find out Total Revenues and Net Income to calculate Net Income Margin.   Total Revenues = Sales Revenues = $150,000 Net Income = Total Revenues - Total Expenses Net Income =...