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 55% of the sales price. A/R subsidiary Ledger Beginning Balances A/P subsidiary Ledger Beginning Balances Smith 3,500 Davidof 9,000 Minnie 6,500 Rasputin 12,000 Merkel 4000 Oklo 11,000 1 Purchased merchandise on account from Phillips Company $16,000. 2 Purchased a truck on account from Ford Company $6,000. 4 Sold merchandise on account to Dombey Company. $1,600. Invoice no. 201, terms 2/10, n/30. 5 Paid freight on merchandise purchased $180. 7 Purchased office supplies on account totaling $250 10 Cash sales for the week total $15,500. 11 Sold merchandise on account to Smith for $2,900, invoice no. 512, and to Merkel $900, invoice no. 513. Post all entries to the subsidiary ledgers. 11 The owner invested additional cash in the business $15,000. 12 Paid rent of $1,000 for the month. 12 Received payment from Dombey Co. for invoice no. 204. 15 Withdrew $800 cash by the owner for personal use. 18 Paid premium due on one-year insurance policy, $2,400. 20 Cash sales from the week is $17,500. 21 Received payment in full from Merkel. Post all entries to the subsidiary ledgers. 22 Sold merchandise on account to Soho for $3,700, invoice no. 514, and to Smith for $800, invoice no. 515. 25 Received payment from Billy's Co. for invoice no. 205. 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. 27 Purchased merchandise on account from Pointy Co. $6,200. 30 Purchased merchandise on account from Dorrit Company $10,000. Instructions a. 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, Vanity Inc. had to take its ending inventory to prepare its annual financial report. You are their new accountant and its your responsibility to decide whether the following items should be counted as their inventory or not. a. Vanity shipped goods costing $800 to a customer and charged the customer $800 on December 28. The goods were shipped with terms FOB shipping point and the receiving report indicates that the customer will receive the goods on January 1. b. Daisy Inc. shipped goods to Vanity under terms FOB destination. The invoice price was $400 plus $25 for freight on December 26. The receiving report indicates that the goods will be received by Vanity on December 31. c. $3200 of inventory that Vanity shipped to Harold's Inc. on consignment is in Harold's Inc.'s warehouse. d. Vanity issued a purchase order to acquire goods costing $850. The goods were shipped with terms FOB shipping point on December 28. Vanity will receive the goods on January 2. c. Vanity shipped goods to a customer under terms FOB destination on December 24. The invoice price was $540 plus $66 for freight; the cost of the items was $450. The receiving report indicates that the goods will be received by the customer on January 3. 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. June 2 June 12 3. At the beginning of June, Martin Chuzzlewitt Inc had in beginning inventory 2,500 units of merchandise with a unit cost of $11. During June, Chuzzlewitt made the following purchases of merchandise 500 at $12 per unit 258 at $14 per unit June 22 333 at $17per unit June 26 625 at $20 per unit During June, 1252 units were sold. Chuzzlewitt uses a periodic inventory system. Instructions 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. a. 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 Jean Veljean Co.'s purchases of merchandise during the month of November. The company uses a periodic inventory system. 759 units were sold at $129 unit price during the month. Date Nov. 1 Explanation Units Unit Cost B. Inventory 256 $ 110 Purchases 100 120 Nov. 12 Nov. 19 Purchases 125 98 Nov. 26 Purchases 239 79 Instructions: a. Compute the ending inventory and cost of goods sold at November 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). 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 55% of the sales price. A/R subsidiary Ledger Beginning Balances A/P subsidiary Ledger Beginning Balances Smith 3,500 Davidof 9,000 Minnie 6,500 Rasputin 12,000 Merkel 4000 Oklo 11,000 1 Purchased merchandise on account from Phillips Company $16,000. 2 Purchased a truck on account from Ford Company $6,000. 4 Sold merchandise on account to Dombey Company. $1,600. Invoice no. 201, terms 2/10, n/30. 5 Paid freight on merchandise purchased $180. 7 Purchased office supplies on account totaling $250 10 Cash sales for the week total $15,500. 11 Sold merchandise on account to Smith for $2,900, invoice no. 512, and to Merkel $900, invoice no. 513. Post all entries to the subsidiary ledgers. 11 The owner invested additional cash in the business $15,000. 12 Paid rent of $1,000 for the month. 12 Received payment from Dombey Co. for invoice no. 204. 15 Withdrew $800 cash by the owner for personal use. 18 Paid premium due on one-year insurance policy, $2,400. 20 Cash sales from the week is $17,500. 21 Received payment in full from Merkel. Post all entries to the subsidiary ledgers. 22 Sold merchandise on account to Soho for $3,700, invoice no. 514, and to Smith for $800, invoice no. 515. 25 Received payment from Billy's Co. for invoice no. 205. 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. 27 Purchased merchandise on account from Pointy Co. $6,200. 30 Purchased merchandise on account from Dorrit Company $10,000. Instructions a. 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, Vanity Inc. had to take its ending inventory to prepare its annual financial report. You are their new accountant and its your responsibility to decide whether the following items should be counted as their inventory or not. a. Vanity shipped goods costing $800 to a customer and charged the customer $800 on December 28. The goods were shipped with terms FOB shipping point and the receiving report indicates that the customer will receive the goods on January 1. b. Daisy Inc. shipped goods to Vanity under terms FOB destination. The invoice price was $400 plus $25 for freight on December 26. The receiving report indicates that the goods will be received by Vanity on December 31. c. $3200 of inventory that Vanity shipped to Harold's Inc. on consignment is in Harold's Inc.'s warehouse. d. Vanity issued a purchase order to acquire goods costing $850. The goods were shipped with terms FOB shipping point on December 28. Vanity will receive the goods on January 2. c. Vanity shipped goods to a customer under terms FOB destination on December 24. The invoice price was $540 plus $66 for freight; the cost of the items was $450. The receiving report indicates that the goods will be received by the customer on January 3. 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. June 2 June 12 3. At the beginning of June, Martin Chuzzlewitt Inc had in beginning inventory 2,500 units of merchandise with a unit cost of $11. During June, Chuzzlewitt made the following purchases of merchandise 500 at $12 per unit 258 at $14 per unit June 22 333 at $17per unit June 26 625 at $20 per unit During June, 1252 units were sold. Chuzzlewitt uses a periodic inventory system. Instructions 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. a. 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 Jean Veljean Co.'s purchases of merchandise during the month of November. The company uses a periodic inventory system. 759 units were sold at $129 unit price during the month. Date Nov. 1 Explanation Units Unit Cost B. Inventory 256 $ 110 Purchases 100 120 Nov. 12 Nov. 19 Purchases 125 98 Nov. 26 Purchases 239 79 Instructions: a. Compute the ending inventory and cost of goods sold at November 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)