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Complete two accounting exercises in which you prepare adjusting journal entries and income statements and compute financial ratios, inventory cost


Complete two accounting exercises in which you prepare adjusting journal entries and income statements and compute financial ratios, inventory cost

 Complete two accounting exercises in which you prepare adjusting journal entries and income statements and compute financial ratios, inventory costs, and gross profit using a provided worksheet.

Introduction

This assessment extends your analysis of merchandising activities by focusing on the valuation of the organization’s inventory that is available for sale to wholesalers and point-of-sale consumers. An understanding of inventory accounting helps in the analysis and interpretation of financial statements prepared by large retailers and small owner-operated specialty retailers.

Merchandise Business Accounting

The first assessment dealt with accounting and reporting activities for businesses that provide services to their customers. In contrast to this business type, merchandisers earn their revenues through the purchase and resale of goods. The two most common types of merchandisers are wholesalers and retailers. A wholesaler generally purchases goods from a manufacturer and sells them to retailers or other intermediaries. A retailer buys direct from either the manufacturer or a wholesaler and resells these goods to consumers. There are some fundamental differences between accounting for merchandise and service operations.

Merchandise Inventory

Accounting for inventory affects both the balance sheet and the income statement. The major goal in accounting for inventory is to properly match costs with sales and, as such, use the matching principle to decide how much of the cost of goods available for sale is deducted from sales and how much is carried forward as inventory and matched against future sales.

Overview

This assessment consists of two accounting exercises. The exercises are provided in the Adjusting Entries, Inventory, and Cost of Goods Sold Worksheet. Use this worksheet to record and submit your solutions for Exercises 2-1 and 2-2.

Preparation

In addition, practice problems for each exercise are provided in the Assessment 2 Practice Problems Worksheet. The worksheet and answer key can be found in the Capella Resources activity of this assessment and are optional.

The following resource is required to complete the assessment.

CAPELLA RESOURCES

Click the link provided to view the following resource:

Submission Guidelines

Submit your completed Adjusting Entries, Inventory, and Cost of Goods Sold Worksheet for faculty evaluation. Please do not submit completed practice problems with your assessment.

Competencies Measured

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

  • Competency 2: Apply accounting principles as the language of business.
    • Prepare adjusting journal entries for merchandising operations.
  • Competency 3: Communicate the effects of business events on an organization’s financial structure.
    • Prepare a multiple- or single-step income statement for merchandizing operations.
    • Compute current and acid test financial ratios.
    • Compute inventory costs using three inventory valuation methods.
    • Compute gross profit using three inventory valuation methods.

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Assessment 2: Adjusting Entries, Inventory, and Cost of Goods Sold

Use this worksheet to complete the following two exercises for Assessment 2. Refer to the instructions in the course for submitting your assessment.

Exercise 2-1

For this exercise, use the following fiscal year-end unadjusted trial balance for the Bigelow Company.

Note: Rent and salary expenses are divided equally between general/administrative and selling activities. Bigelow uses a perpetual inventory system.

BIGELOW COMPANY

Unadjusted Trial Balance

April 30, 2012 (Fiscal year-end)

Debit

Credit

Cash

$2,150

Merchandise inventory

12,100

Store supplies

4,600

Prepaid insurance

2,100

Store equipment

42,350

Accumulated depreciation—Store equipment

$12,000

Accounts payable

8,700

Common stock

4,500

Retained earnings

25,400

Dividends

1,800

Sales

108,500

Sales discounts

950

Sales returns and allowances

1,750

Cost of goods sold

36,300

Depreciation expense—Store equipment

0

Salaries expense

32,500

Insurance expense

0

Rent expense

13,800

Store supplies expense

0

Advertising expense

8,700

_______

Totals

$159,100

$159,100

Prepare adjusting journal entries for the following:

$1,700 of store supplies remaining at the end of the fiscal year.

$1,800 of expired insurance for the fiscal year (administrative expense).

$1,250 depreciation expense on store equipment for the fiscal year (selling expense).

$11,200 of merchandise inventory remaining at the end of the fiscal year (based on a physical count to estimate shrinkage).

Adjustment (a):

Adjustment (b):

Adjustment (c):

Adjustment (d):

Prepare a fiscal year 2012 multiple-step income statement. For distinguished performance, prepare both multiple- and single-step income statements.

BIGELOW COMPANY

Income Statement

For Year Ended April 30, 2011

[Create the 2011 multiple-step income statement here.]

Prepare a fiscal year 2012 single-step income statement.

BIGELOW COMPANY

Income Statement

For Year Ended April 30, 2011

[Create the 2011 single-step income statement here.]

Compute the following ratios as of April 30, 2012.

Current ratio.

Acid test ratio.

[Compute the ratios here.]

For distinguished performance, compute the gross margin ratio.

[Compute the ratio here.]

Exercise 2-2

The following A. B. Murphy Company data show purchase and sales transactions for the month of April. A. B. Murphy uses a perpetual inventory system.

Date

Activities

Units Purchased (at cost)

Units Sold (at retail)

Apr 1

Beginning inventory

065 units @ $40/unit

Apr 8

Purchase

225 units @ $45/unit

Apr 12

Sales

235 units @ 75/unit

Apr 19

Purchase

050 units @ $50/unit

Apr 23

Purchase

125 units @ $55/unit

0

Apr 27

Sales

________

95 units @ 80/unit

Totals

465 units

330 units

Compute the following:

Cost of (1) goods available for sale and (2) number of units for sale.

Number of units in ending inventory.

Cost assigned to ending inventory, using any three of the following four methods. Compute costs using all four methods for distinguished performance. Round per unit costs to three decimal places and inventory balances to the nearest dollar.

FIFO.

LIFO.

Weighted average.

Specific identification (see note below).

FIFO Perpetual

Date

Goods Purchased

Cost of Goods Sold

Inventory Balance

LIFO Perpetual

Date

Goods Purchased

Cost of Goods Sold

Inventory Balance

Weighted Average Perpetual

Date

Goods Purchased

Cost of Goods Sold

Inventory Balance

Specific Identification

Note: The April 12 sale comprised 55 units from beginning inventory and 180 units from the April 8 purchase. The April 27 sale comprised 30 units from the April 19 purchase and 65 units from the April 23 purchase.

Date

Goods Purchased

Cost of Goods Sold

Inventory Balance

Gross profit, using FIFO, LIFO, weighted average, and specific identification.

FIFO

LIFO

Weighted

Average

Specific

Identifi-cation

1

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