Question
Hemming Limited (HL) is in the wholesale business with four major product lines. On December 31, 20X1, HL's records showed the following four items in
Hemming Limited (HL) is in the wholesale business with four major product lines. On December 31, 20X1, HL's records showed the following four items in its ending inventory:
Item - Cost - Estimated selling price - Estimated selling cost
Product A $47,000 $49,000 $600
Product B $75,000 $79,000 $2,000
Product C $53,000 $60,000 $2,400
Product D $60,000 $38,000 $2,000
Total $235,000 $226,000 $7,000
On December 31, 20X2, HL's records showed the following in its ending inventory:
Item - Cost - Estimated selling price - Estimated selling cost
Product A $64,000 $78,000 $2,000
Product B $59,000 $40,000 $1,000
Product C $67,000 $39,000 $3,000
Product D $28,000 $31,000 $5,000
Total $218,000 $188,000 $11,000
The four product lines have high turnover and all items of inventory on hand are sold by HL to customers within a year. HL is listed on the TSX and has a December 31 year end. Required: Prepare the necessary adjusting entries for HL on December 31, 20X2 in relation to the company's inventory assuming that HL uses
(1) a perpetual inventory system and the direct method of adjusting inventory balance.
(ii) a perpetual inventory system and the "allowance method" of adjusting inventory balance.
(iii) a periodic inventory system and the direct method" of adjusting inventory balance.
(iv) a periodic inventory system and the "allowance method of adjusting inventory balance.
Assume that, if the allowance method is used, HL follows the policy of leaving the allowance account on the books and merely adjusting its balance at the next reporting date. For each DEBIT and CREDIT entry, after the name of the account, indicate clearly whether the account is an Income Statement (I/S) account or a Balance Sheet (B/S) account. Show supporting calculations.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started