Practice Problems for Exam #2

1. Given the following data for a company that uses the periodic inventory system calculate Ending
Inventory and Cost of Goods Sold using 1) Average Cost Method 2) FIFO 3) LIFO

Date Units Cost/Unit

1-Jan Beg. Inventory 20 $ 10.00
5-Jan Purchase 60 $ 12.00
15-Jan Purchase 40 $ 16.00
23-Jan Purchase 10   $ 18.00
130

Assume that a physical count of inventory revealed 25 units remaining.

2. Given the following information and assuming a company uses the periodic method, calculate
EI and COGS using FIFO, LIFO, and Ave Cost

Date Units $/Unit

1-Nov Beg. Inventory 20 $5.00
9-Nov Purchase 40 $6.00
10-Nov Sale 50 $12.00
13-Nov Purchase 50 $7.00
25-Nov Purchase 30 $8.00
27-Nov Sale 70 $15.00

3. Prepare original entries on stated dates & then adjusting journal entries for Bob’s Pool Service
Company on December 31, 2006. Assume that no prior adjustments have been made in 2006.

a. Pool supplies of $2,500 are purchased on account February 5th. At year end there was $300 of
pool supplies remaining.
b. Equipment was purchased on April 1, 2006 for $14,000 on account. The equipment has an
expected life of 10 years and a salvage value of $2,000.
c. On May 1, 2006, the company signed a 1 year $24,000 service contract that will run from June 1,
2006 to May 31, 2005. The company received the $24,000 in advance and performed services
according to the terms of the contract.
d. On November 30, 2006, Bob paid an insurance premium of $12,000 for the next two year’s of
insurance.
e. Bob pays employees $10,000 per week for a five day work week. This year 12/31 falls on a
Tuesday.
f. Bob issued a $20,000 6-month note payable on October 31, 2006. The terms of the note specified
an 8% interest rate with interest and principal due at maturity.

4. On October 1, the Flat Tire Bicycle Store had an inventory of 30 ten speed bicycles at a cost
of $50 each. During the month of October the following transactions occurred. Assume Macke
uses a perpetual inventory system.

Oct. 4 Purchased 100 bicycles at a cost of $50 each from the Lyons Bicycle Company,
terms 2/10, n/30.
5 Paid freight of $280 on the October 4th purchase.
6 Sold 20 bicycles from the October 1 inventory to Team America for $100 each, terms
1/10, n/30.
7 Received credit from the Lyons Bicycle Company for the return of 10 defective
bicycles.
12 Issued a credit memo to Team America for the return of 2 defective bicycles.
13 Paid Lyons Bicycle Company.
14 Received payment from Team America.

Prepare the journal entries to record the transactions assuming the company uses a perpetual
inventory system.

5. Prepare closing entries given the following partial information from the adjusted trial
balance.

Accounts Receivable 5
Accounts Payable 2
Accumulated Depreciation-Bldg 30
Bonds Payable 5
Building 50
Cash 3
Cost of Goods Sold 200
Common Stock 8
Depreciation Expense 10
Dividends 20
Income Taxes Payable 10
Insurance Expense 2
Notes Payable 5
Prepaid Insurance 10
Retained Earnings 60
Salary Expense 20
Sales 400
Service Revenue 100
Unearned Revenue 10
 Solutions:

#1
Date Units Cost/Unit Total Cost
1-Jan Beg. Inventory 20 $10.00 $ 200.00
5-Jan Purchase 60 $12.00 $ 720.00
15-Jan Purchase 40 $16.00 $ 640.00
23-Jan Purchase 10   $18.00 $ 180.00
Available 130 $ 1,740.00

Average Cost $ 13.38 =$1,740/130

31-Jan Ending inventory 25 FIFO $ 420.00 =10*$18 + 15*$16

25 LIFO 260.00 =20*$10 + 5*$12
25 AVERAGE $ 334.62 =25*$13.38

COGS 105 FIFO $ 1,320.00 =$1,740 - $420

105 LIFO $ 1,480.00 =$1,740 - $260
105 AVERAGE $ 1,405.38 =$1,740 - $334.62

#2

Date Units $/Unit Total Cost

1-Nov Beg. Inventory 20 $5.00 $100.00
9-Nov Purchase 40 $6.00 $240.00
13-Nov Purchase 50 $7.00 $350.00
25-Nov Purchase 30 $8.00 $240.00
Available 140 $930.00

10-Nov Sale 50 $12.00 $600.00

27-Nov Sale 70 $15.00 $1,050.00
120 $1,650.00

Average Cost $ 6.64 =$930/140

Ending inventory 20 FIFO $ 160.00 =20 * $8

20 LIFO $100.00 =20 * $5
20 AVERAGE $ 132.86 =20 * $6.64

COGS 120 FIFO $770.00 =$930 - $160

120 LIFO $830.00 =$930 - $100
120 AVERAGE $797.14 =$930 - $132.86
#3: The following answers lack the appropriate explanations which need to be added for
full credit!!!

Original Entries:
Date Account Dr. Cr.
2/5 Pool Supplies 2,500
A/P 2,500
4/1 Equipment 14,000
A/P 14,000
5/1 Cash 24,000
Unearned Revenue 24,000
10/31 Cash 20,000
Note payable 20,000
11/30 Prepaid Insurance 12,000
Cash 12,000
12/31 Wage Expense 4,000
Wages payable 4,000

Adjusting Entries:
12/31 Supplies Exp. 2,200
Supplies 2,200
12/31 Depreciation Expense 900
Accumulated Depreciation 900
12/31 Unearned Revenue 14,000
Service Revenue 14,000
12/31 Insurance Exp. 500
Prepaid Insurance 500
12/31 Interest Expense 266.67
Interest payable 266.67
#4: The following answers do not show explanations which need to be added if you want full
credit!!!!

Oct. 4 Merchandise Inventory ........................................................ 5,000

Accounts Payable ...................................................... 5,000

5 Merchandise Inventory ........................................................ 280

Cash .......................................................................... 280

6 Accounts Receivable .......................................................... 2,000

Sales .......................................................................... 2,000

Cost of Goods Sold ............................................................. 1,000

Merchandise Inventory ............................................... 1,000

7 Accounts Payable ............................................................... 500

Merchandise Inventory ............................................... 500

12 Sales Returns and Allowances ........................................... 200

Accounts Receivable .................................................. 200

Merchandise Inventory ........................................................ 100

Cost of Goods Sold .................................................... 100

13 Accounts Payable................................................................ 4,500

Cash........................................................................... 4,410
Merchandise Inventory................................................ 90

14 Cash ……………………………………….................................... 1,782

Sales Discount..................................................................... 18
A/R.............................................................................. 1,800

#5: Closing Entries:

Date Account Dr. Cr.
12/31 Service Revenue 100
Sales 400
Income Summary 500
12/31 Income Summary 232
COGS 200
Deprec. Exp. 10
Insurance Exp. 2
Salary Exp. 20
12/31 Income Summary 268
Retained Earnings 268
12/31 Retained Earnings 20
Dividends 20