1. Mercury Company has the following opening account balances in its subsidiary ledgers on May 1 and uses the periodic inventory system. All ledger accounts have normal debit and credit balances. The company completed the following transactions during the month. The cost of all merchandise sold was 64% of the sales price. A/R Subsidiary Ledger Beginning Balances Smith 1,500 Minnie Merkel A/P Subsidiary Ledger Beginning Balances Davidof 7,500 Rasputin 4000 Oklo 9,000 20,000 13,000 1 Purchased merchandise on account from Little Company $12,000, Invoice no. 260, terms 2/10, n/30. 3 Sold merchandise on account to Soho $2,800, Invoice no. 520, and Danube $2,400, invoice no. 511. 5 Purchase merchandise on account from Bennet $5,000 and Gasby $4,700. 9 Issued credit of $300 to Danube for merchandise returned. 10 Purchased merchandise on account from Frankle Corp. $2,600. 13 Receive payment in full from Soho and Danube. 18 Purchased merchandise for cash $1,600. 21 Issued $20,000 note to Rasputin in payment of balance due. 21 Made cash sales for the week totaling $6,000. 22 Sold merchandise on account to Soho for $3,700, invoice no. 514, and to Smith for $800, invoice no. 515. 25 Purchased supplies on account from Francisco Co. $190. 25 Received payment from Soho for invoice no. 514 and from Smith for invoice no. 515. 25 Sold merchandise on account to Mestis Corp. $3,800, invoice no. 206, terms 2/10, n/30. 26 Purchased for cash a small parcel of land and a building on the land to use as a storage facility. The total cost of $26,000 was allocated $16,000 to the land and $10,000 to the building. 28 Paid $1,600 for employee salaries and wages. 30 Sold merchandise on account to Billy's Co.$3,400, invoice no. 207, terms 2/10, n/30. Instructions 1 Record the month's transactions in the appropriate journal-sales, purchases, cash receipts, cash payments, and general. b. Post the journals to the general and subsidiary ledgers. 2. At December 31, Belle Inc. had to take its ending inventory to prepare its annual financial report. You are their new accountant and it's your responsibility to decide whether the following items should be counted as their inventory or not. a. Belle shipped goods costing $1000 to a customer and charged the customer $1,000 on December 25. The goods were shipped with terms FOB destination and the receiving report indicates that the customer will receive the goods on January 4. b. Merryland Inc. shipped goods to Belle under terms FOB shipping point. The invoice price was $500 plus $75 for freight on December 27. The receiving report indicates that the goods will be received by Belle on January 3. c. $1400 of inventory that Harold's Inc. shipped to Belle on consignment is in Belle's warehouse. d. Belle issued a purchase order to acquire goods costing $850. The goods were shipped with terms FOB destination on December 28. Belle will receive the goods on January 9. e. Belle shipped goods to a customer under terms FOB shipping point on December 24. The invoice price was $500 plus $55 for freight; the cost of the items was $350. The receiving report indicates that the goods will be received by the customer on December 31. Instructions For each of the above transactions, specify whether the item in question should be included in ending inventory, and if so, at what amount. 2 3. Phoenix Inc sells snowboards. At the beginning of August, Phoenix had in beginning inventory 2,500 snowboards with a unit cost of $7. During August, Phoenix made the following purchases of snowboards. August 5 2500 at $9 per unit August 9 3500 at $11 per unit August 13 4250 at $14 per unit August 26 2500 at $17 per unit During August, 12,152 units were sold. Phoenix uses a periodic inventory system. Instructions a. Determine the ending inventory and the cost of goods sold under each of the assumed cost flow methods (FIFO, LIFO, and average-cost). Prove the accuracy of the cost of goods sold under the FIFO and LIFO methods. b. Which cost flow method results in (1) the highest inventory amount for the balance sheet and (2) the highest cost of goods sold for the income statement? 4. Presented below is information relating to Havisham Co.'s purchases of merchandise during the month of April. The company uses a periodic inventory system. 600 units were sold at $260 unit price during the month. Explanation Units. Unit Cost Date April. 1 B. Inventory 120 $ 200 April. 3 Purchases 160 222 April. 10 Purchases 140 250 April. 22 Purchases 375 245 Instructions: 3 a. Compute the ending inventory and cost of goods sold at April 30 using the FIFO and LIFO and average cost methods. b. What is gross profit under each method? c. Which method results in a larger amount reported for assets on the balance sheet? Which results in a larger amount reported for owner's equity on the balance sheet? 5. Do the special journals used in different industries or even in different companies are identical in format? Can a cash receipt journal without an account receivable column be suitable for any company? 6. Explain the posting process to subsidiary ledger accounts and control accounts. What is the relationship between a general and a subsidiary ledger accounts? 7. One of your distant cousins decides to start a new retail company and seeks your advice on which cost flow method is better. What is your response? 8. What is an "accounting information system?"? 9. "If a customer returns goods for credit, the selling company normally makes an entry in Sales Journal." Do you agree? 10. How does an enterprise resource planning (ERP) system differ from an entry-level computerized accounting system? 11. Which one is better higher "inventory turnover rate" or shorter "days in inventory"? 12. Define the concept of "lower-cost-or-market (LCM)". 4