accounting

 

Carmen’s Household Appliances

carries an inventory of clocks and other household items. The business began the second quarter of 2013 with
15 clocks (Lomani Quartz Brand) at a total cost
of $36,000. The following transactions, relating to the clocks (Lomani Quartz Brand), took place during the quarter: April 5

Purchased 30 clocks at a cost of $2,490 each.

  

April 30

  

The sales for April were 18 clocks which yielded

 

total sales revenue of $81,000.

May 1

  

A new batch of 15 clocks was purchased

 on account at a cost of $2,250 each. These units attracted an additional shipping cost of $350 on each clock. It is customary for Carmen’s Household Appliances to include freight-in as part of the cost of the units in their inventory record.

May 16

  

Upon inspection, five (5) of the clocks purchased on May 1 were found to be badly soiled and were returned to the supplier.

  

May 30

  

During the month 20 clocks were sold at a price of $5,000 each.

  

June 2

  

Ariana Stone, a customer to whom 5 clocks were sold at the

 

close of business on May 30th, returned 2 of the clocks, as she had purchased an incorrect quantity.

June 12

  

To meet the increased demand for the commodity, a further 14 clocks were purchased at a cost of $3,000 each, however a

 

trade discount of 5% was received on each clock.

June 30

  

22 clocks were sold during June at a unit selling price of $5,300.

   June 30  

A physical count of inventory was carried out at the close of business, which revealed that there were only 8 clocks on hand.

  

     

Prepare a

perpetual inventory ledger card for
clocks (Lomani Quartz Brand), clearly showing the value of ending inventory at June 30
th, 2013, and the total amount to be assigned to cost of goods sold for the period.
(20 marks)

 

ii)

Given that marketing & selling and administrative costs for the quarter were $16,550 and $23,710 respectively, prepare an income statement for
Carmen’s Household Appliances for the period, to determine the profit earned on the
Lomani Quartz clocks. (6 mark

     

You are told that 8 of the clocks sold on May 30

th, 2013 were
on account. State the journal entries necessary to record the transactions on May 1
st and May 30
th , assuming the company uses a: – Periodic inventory system

 

– Perpetual inventory system

(8 marks) iv) Assuming that the business used the
average cost method, what would be the value of the units sold on April 30?
(Show all workings to explain your answer) (3 marks)

 v) 

Briefly explain the impact of inflation on ending inventory, cost of goods sold and gross profit under both the FIFO and LIFO methods of inventory valuation.
(