Xyz company uses the periodic inventory system

Paraphrase

Assignment

2

Marks

3.75 (10 Points)

Course Title

Principles of Accounting

Code

ACCT 101

Uploading

End week 5

Submission

End week 6

Date

Sat 06/10/2018

Dates

Sat 13/10/2018

Instructions:

· The answers must be in English.

· Students must include their details (Name, Student ID, CRN, Date of submission)

· Answer the ALL questions.

· MUST write the questions in the answer papers .

· Assignments should be submitted in MS Word format

· Font should be Times New Roman with 14 points.

· You are required to work in this assignment individually.

· You should submit the assignment via the Blackboard System.

· Students, who submit assignments after deadline, will get ZERO.

· If you engaged in plagiarism, you will get ZERO marks in the assignment.

Q1.XYZ Company uses a periodic inventory system. The beginning balance of inventory and the purchases made by XYZ during the month of July are given below:

Date

Description

Units

Unit cost

Total cost

July 01

Beginning inventory

500

$20

$10,000

July 18

Inventory purchased

800

$24

$19,200

July 25

Inventory purchased

700

$26

$18,200

Total

2,000

$47,400

The XYZ Company sold 1,400 units during the month of July.

Required: Compute inventory on 31st July and cost of goods sold for the month of July using FIFO inventory costing method: (3 marks)

Answer to Q1:

· COGS =

500 * $20 = 10,000 + 800 * $24 = 19,200 + 100 * $26 = 2,600 = 31,800

· Inventory on 31st July = Beginning inventory + Purchases – COGS =

= 10,000 + 19,200 + 18,200 – 31,800 = 15,600

Q2. ALPHA Company reported the following year-end information:

Cash

$ 52,000

Short-term investments

12,000

Accounts receivable

54,000

Inventory

325,000

Prepaid expenses

17,500

Accounts payable

106,500

Other current payables

25,000

Instructions: 1- Explain the purpose of the acid-test ratio. (1 mark) 2- Calculate the acid-test ratio for ALPHA Company. (2 marks)

Answer to Q2:

1-The purpose of the acid-test ratio:-

· The acid-test ratio is a common ratio that is used to determine the liquidity of a company. In other words, this ratio determines if the company has enough liquid assets to pay current liabilities. The ratio is calculated as quick assets divided by current liabilities.

· Quick assets include cash, short-term investments, and receivables. A common rule of thumb is for the acid-test ratio to be at least one point zero, but this can vary from industry to industry.

2-Acid-test: -

= Cash + S/T investments + receivables

Current liabilities

= (52,000 + 12,000 + 54,000) / (106,500 + 25,000) = 118,000 / 131,500 = 0.89

Q3. Maia's Bike Shop uses the periodic inventory system and had the following transactions during the month of May:

May 3

Sold merchandise to a customer on credit for $600, terms 2/10, n/30. The cost of the merchandise sold was $350.

May 4

Sold merchandise to a customer for cash of $425. The cost of the merchandise was $250.

May 6

Sold merchandise to a customer on credit for $1,300, term 2/10, n/30. The cost of the merchandise sold was $750.

May 8

The customer from May 3 returned merchandise with a selling price of $100. The cost of merchandise returned was $55.

May 15

The customer from May 6 paid the full amount due, less any appropriate discounts earned.

May 31

The customer from May 3 paid the full amount due, less any appropriate discounts earned.

Instructions:

Prepare the required journal entries that Maia's Bike Shop must make to record these transactions. (3 marks)

Answer to Q3:

D

Debit Accounts

Amount

Credit Accounts

Amount

3

Accounts Receivable

600

Sales

600

cost of goods sold

350

Merchandise inventory

350

4

Cash

425

Sales

425

cost of goods sold

250

Merchandise inventory

250

6

Accounts Receivable

1,300

Sales

1,300

cost of goods sold

750

Merchandise inventory

750

8

Sales Returns and Allowances

100

Accounts Receivable

100

Merchandise inventory

55

cost of goods sold

55

15

Cash

1,274

Sales discount

26

Accounts Receivable

1,300

31

Cash

500

Accounts Receivable

500

Q.4 What does FOB stand for? Differentiate between FOB shipping point (or FOB factory) and FOB destination? (1 mark)

Answer to Q4:

· FOB stands for free on board

· Differentiate between FOB shipping point (or FOB factory) and FOB destination:-

· Free on board shipping point means that ownership transfers from the seller to the buyer when the seller provides the goods to the carrier. It also means that buyer will pay the transportation cost.

· FOB destination means that ownership transfers from the seller to the buyer when the buyer receives the goods. It also means that seller will pay the transportation cost.

· So, if goods are shipped FOB shipping point, then the buyer owns the goods in transit and will pay the transportation costs. In this case, the transportation cost will be added to the merchandise inventory account.