Question

Home Hardware reported beginning inventory of 20 shovels, for a total cost of $100. The company had the following transactions during the month:

Jan.	2		Sold 5 shovels on account at a selling price of $11 per unit.
	16		Sold 9 shovels on account at a selling price of $11 per unit.
	18		Bought 7 shovels on account at a cost of $5 per unit.
	19		Sold 9 shovels on account at a selling price of $11 per unit.
	24		Bought 9 shovels on account at a cost of $5 per unit.
	31		Counted inventory and determined that 10 units were on hand.

2. Prepare the journal entries that would be recorded using a perpetual inventory system, including any “book-to-physical” adjustment that might be needed. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

3. 3-a. What is the dollar amount of shrinkage that you were able to determine in periodic inventory system?

4. 3-b. What is the dollar amount of shrinkage that you were able to determine in perpetual inventory system?

Answer 1

Req. 1 Periodic inventory system: January 2 Accounts Receivable 55 Sales Revenue (5 units at $11) 55 January 16 Accounts Receivable 99 Sales Revenue (9 units at $11). 99 January 18 35 Purchases (7 units at $5). Accounts Payable 35

January 19 Accounts Receivable 99 Sales Revenue (9 units at $11). 99 January 24 45 Purchases (9 units at $5). Accounts Payable 45 January 31 Cost of Goods Sold 180 80 Purchases Inventory (Beginning: 20 units at $5). Assume all goods are sold. 100 50 Inventory (Ending: 10 units at $5). Cost of Goods Sold 50 Recognize that not all goods were sold. $100 80 Calculation of Cost of Goods Sold: Beginning Inventory (20 units at $5) Add Purchases Cost of Goods Available For Sale Less Ending Inventory (physical count-10 units at $5) Cost of Goods Sold 180 50 $130 Req. 2 Perpetual inventory system: January 2 55 Accounts Receivable Sales Revenue (5 units at $11). Cost of Goods Sold 55 25 Inventory (5 units at $5). 25 January 16 Accounts Receivable 99

Sales Revenue (9 units at $11). 99 Cost of Goods Sold 45 Inventory (9 units at $5) 45 January 18 35 Inventory (7 units at $5). Accounts Payable 35 January 19 Accounts Receivable 99 Sales Revenue (9 units at $11). 99 Cost of Goods Sold 45 Inventory (9 units at $5). 45 January 24 45 Inventory (9 units at $5) Accounts Payable 45 January 31 15 Cost of Goods Sold (3 units at $5). Inventory To record "book-to-physical” adjustment (see below). 15 - 23 (sales) = 13 Shrinkage units: 20 (beginning inventory) + 16 (purchases) book vs. 10 physical = 3 unit of shrinkage. Req. 3 (a) One cannot determine (CD) the dollar amount of shrinkage when using a periodic inventory system in requirement 1. (b) When using a perpetual inventory system in requirement 2, shrinkage can be determined to be $15.