Exercise 1 - Periodic Inventory Systems - Exercise 5.1 Page 323

1. On 5 april purchased inventory from D. Nicks Ltd for $9000. Terms 2/7, n/30, FOB shopping point.

2. On 6 april Freight costs of $450 on inventory purchased from D.Nicks Ltd.

3. On 7 April Purchased equipment on account for 13000

4. On 8 April returned damaged inventory to D.Nicks Ltd and was granted a $1500 allowance.

5. On 9 Aril paid the amount due to D. Nicks Ltd in full

Required

(a)

Prepare the journal entries to record these transactions on the books of Peters Ltd using a periodic inventory system

(b) Assume that peters Ltd paid the balance due to D. Nicks on 4 May instead of 9 April, Prepare the journal entry to record this payment.

Exercise 2

( In millions)2018

Beginning inventory36306

Ending Inventory36621

Current asset133089

Current liabilities143418

Cost of sales353419

Sales421 299

Required

(a) calculate inventory turnover, days in inventory, and current ratio for Prestige motors ltd for 2018.

(b) if a company has a low inventory turnover or high days in inventory, is it considered to be a good or bad sign for the entity's shareholders. Explain your answers

Exercise 3

Units Unit costUnit sale price

August 3Sale 45 83

August 8purchase 75 52

August 21Sale 70 85

August 30purchased 10 55

Requirements

1. Prepare a perpetual inventory record, and calculate the cost of ending inventory for the inventory using FIFO,LIFO, and average cost method.

2. Determine the firm's cost of sales for the entire month of august using FIFO, LIFO , and average cost method.

3. Calculate gross profit for the entire month of august using FIFO, LIFO, average cost method.

4. Which method results in highest gross profit for the month? Provide reasoning and explanation.