Question 3 A Journal entries — perpetual inventory system

Using the perpetual inventory system, record the following transactions in the general journal of Fitzroy
Ltd :

1. Purchased 240 units for $220 each on credit.

2. Returned 12 units to the supplier.
3. Sold 48 units for $380 each on credit.
4. Purchased office supplies for $360 cash.
5. Customer returned 6 of the units sold in (3).
6. Sold 42 units for $390 each on credit.
7. The physical inventory count at the end of the period consisted of 140 units of inventory.

Question 3B Inventory cost methods — perpetual inventory

system

The following information relates to the inventory of Gadgets Ltd during May:

May 1 Beginning Inventory 80 @ $7

3 Purchased 90 @ $8
10 Purchased 110 @ $9
12 Sold 90
17 Sold 80
25 Sold 30

Gadgets Ltd uses a perpetual inventory system.

Required
Determine the cost of the ending inventory (assuming there have been no stock losses) and the cost of
sales, using the following three methods.
1. the moving average; round unit cost to the nearest cent.
2. specific identification; assume that the ending inventory on 31 May consisted of 13 units from the
beginning inventory, 24 units from the 3 May purchase, and the remainder from the 10 May
purchase.
3. FIFO.
Question 4 Bad debts and financial statement disclosure

The following transactions relate to the gardening maintenance business of Steve Jones. The balance in
the Allowance for Doubtful Debts account on 1 July 2014 was $7440. The bad debts during the
year ended 30 June 2015 amounted to $5220. Debtors’ balances on 30 June 2015 after the bad
debts had been written off total $162 960, and a new allowance of 5% of debtors is required.
(Ignore GST for the purposes of this exercise.)

Required
A. Prepare and balance the Allowance for Doubtful Debts accounts for the year to 30 June 2015.

B. Show how the above information would be disclosed in:

1. the income statement for the year ended 30 June 2015
2. the balance sheet as at 30 June 2015.

Question 5 Depreciation methods

Hampstead Ltd purchased new equipment on 1 January 2015, at a cost of $590 000 net of GST. The
company estimated that the equipment has a useful life of 5 years and a residual value of $45 000.

Required
Assuming a financial year ending 30 June, calculate the amount of depreciation expense for each year
ending 30 June 2015 through to 30 June 2020, with each of the following methods:
1. straight-line
2. diminishing balance.