Esperado Furnishings are retailers who purchase and sellhousehold furnishings, including table lamps. The business uses aperpetual inventory system and adjusts cost of goods sold for anyshortage or excess inventory. The business began the last quarterof 2018 with merchandise inventory of 10 pairs of “Italia” tablelamps at a total cost of $168,200.
The following transactions, relating to the “Italia” brand werecompleted during the quarter:
October 5 | Purchased 15 pairs of lamps at a cost of $17,020 per pair |
October 14 | Sold 18 pairs of lamps to Muller Furnishings at $22,250 perpair |
October 22 | Purchased 24 pairs at a cost of $18,175 per pair but thesupplier gave a 4% quantity discount. |
November 10 | Sold 15 pairs of lamps to Orion Household Ltd and 10 pairs toBrown’s Furnishings which yielded total sales revenue of$589,750. |
November 12 | Owing to an increased demand for this product, 30 pairs of lampswere purchased on account at a cost of $17,612 per pair. Inaddition, Esperado paid $288 in cash on each pair of lamps to havethe inventory shipped from the vendor’s warehouse to Esperado’sshowroom. |
November 27 | Sold 23 pairs of lamps to Middletown Company at a price of$25,080 per pair. |
November 30 | An actual count of inventory was carried out which revealed thatthere were 15 pairs of the “Italia” brand in the warehouse. |
December 2 | In preparation for the festive season, Esperado purchased 25pairs of lamps at a total cost of $474,500. |
December 15 | 5 pairs of the lamps purchased on December 2 were returned tothe supplier, as they were not of the brand ordered. |
December 30 | Sold 22 pairs of lamps to two customers (Omega Traders &Middleton Furnishings) at a selling price of $26,550 per pair. |
All purchases were on account and received on the dates stated.Required:
- Prepare a perpetual inventory record for Esperado Furnishings,using the first in, first out (FIFO) method to determine the valueof ending inventory at December 31, 2018, and the total amount tobe assigned to cost of goods sold for the period.
- Given that selling, distribution and administrative costs forthe quarter were $23,445, $10,250 and$75,435 respectively, preparean income statement for Esperado Furnishings for the period, todetermine the net profit for the quarter, assuming the perpetualinventory system.
- You are told that 8 pairs of lamps sold on November 27, 2018were on account. State the journal entries necessary to record thetransactions on November 12 and November 27, assuming the businessuses a:
- Perpetual inventory system
- Periodic inventory system
- Assuming that Esperado sold 86 pairs of “Italia” brand of lampsduring the quarter; determine the value of ending inventory andcost of goods sold assuming the business used the periodic systemand the LIFO method?
