Question

LO7-3 AP7-2 11 16 Reporting the Effects of Inventory Costing Methods on Financial Statement Elements and Evaluating Inventory Management (P7-5) The following details were extracted on November 30, 2017, from the records of Seema Company for a specific product: Date Quantity Unit Cost Unit Sale Price Beginning inventory, January 1 300 $ 9 Purchase, February 10 400 10 Sale, April 7 300 $15 Purchase, August 20 300 Sale, November 29 350 On December 21, 2017, Seema sold 200 units to a customer at $18 per unit. Assume that the com uses a perpetual inventory system and that its fiscal year ends on December 31, 2017 Required: 1. Which inventory costing method does Seema use? Explain. 2. Prepare the journal entries to record the purchase transaction on August 20 and the sale transaction on December 21, assuming that both are cash transactions. 3. Compute the inventory turnover ratio during 2017, and briefly explain what the amoun 4. Assume that the demand for this product slowed down during December 2017, and its realizable value dropped to $9.5 per unit at December 31, 2017. Seema reports its ending at the LC&NRV. Prepare the journal entry that should be recorded at December 31, 201 5. Compute the cost of sales for 2017, assuming for this part only that Seema uses the we average cost method. hiding inventory the weighted

Answer 1

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Part 1
FIFO since table shows that oldest item purchased being sold first.
Part 2
Date	Account	Debit	Credit
Aug 20	Inventory	$    3,300
	Cash		$    3,300
Dec 21	Cash	$    3,600
	Sales		$    3,600
Part 3
	Cost of Goods Sold		$    8,350
	(300*$9)+(400*$10)+(150*$11)
	Average Inventory:
	Beginning	$    2,700
	Ending (150*$11)	$    1,650
	Average Inventory		$    2,175
	Inventory Turnover Ratio		3.84
	$8,350/$2,175
	The inventory turnover ratio reflects how many times average inventory was sold during the period. The ratio indicates that Seema’s inventory was sold about four times during 2014.
Part 4
Dec 31	Cost of Goods Sold	$        225
	Allowance for write down of inventory to NRV		$        225
	150*($11-$9.50)
Part 5		Rate	Unit	Total Cost
	April 7 Sale	$       9.57	$        300	$          2,871
	[(300*$9)+(400*$10)]/700
	Nov 29 and Dec 21 Sale	$    10.18	$        550	$          5,599
	[(400*$9.57)+(300*$11)]/700
	Total			$          8,470