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Here, we need to record journal entries date-wise for Adams Company (Selling Company) using the gross method under perpetual inventory system in which accounts receivable and sales are recorded at gross amount (full amount) and not at net amount. April 9 Accounts Receivable a/c $10,000                                        Sales a/c $10,000 (Sold Merchandise To Evans Company) Cost of Goods Sold a/c $6,000                                 Inventory a/c $6,000 (To Update Inventory Due To Sales Made On Account Which Reduces Its Balance) April 15 Sales Return & Allowance a/c $1,200           ...

If the company or entity did not recorded purchases, then it understated the purchases account in the Income Statement. The ending inventory account is also understated in income statement and on the balance sheet as well. Due to non-recording of certain purchases, accounts payable account is also understated. However, there are no effects on cost of goods sold and net income for the period as both the purchases and ending inventory accounts are understated with the equal amount, so the effect of error on the debit side (purchases is less debited with equal amount) offsets or cancels the effect of error on the credit side (ending inventory is less credited with equal amount) in the calculation of cost of goods sold. As, there is no effect on cost of goods sold, so there is also no effect on net income as the error is not carried out its effect on net income due to offsetting or cancellation. There is also no effect on Retained Earnings as there is no effect on net income and hence...

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...