+1 862 207 3288 Using the perpetual inventory system, prepare the journal entries to record Klondike Music’s transactions.
Question Marks
Available Marks
Achieved
1 18
2 12
3 15
4 20
5 10
6 25
Total 100
Examination Rules
You are allowed the following materials to complete this examination:
1. Writing utensils
2. A calculator that is not included in a cellular phone or other personal data device, including but not limited to iPhones, Blackberries, Androids etc. THERE WILL BE NO EXCEPTIONS TO THIS RULE.
All cellular phones and personal data devices are to be set on silent and placed out of sight during the duration of the examination.
Once time has been called you must STOP writing. Anyone continuing to write will be assessed a 5 mark penalty.
You must submit your paper within 5 minutes of time being called.
You must submit the question paper and the answer paper to have your paper graded.
Question 1 – 20 marks
Klondike Music sells musical instruments. The following data relates to Klondike’s inventory of guitars. On January 1, 2011, Klondike had 12 guitars in inventory at a cost of $250 each. During January, the following transactions occurred.
Jan. 1 Purchased 15 guitars at $250 each from International Music Centre (IMC) on account, terms n/30
4 Sold 2 guitars for cash at $370 each
6 One of the two guitars sold on Jan 4 was returned because it was defective. A full refund was paid. The guitar will be returned to IMC on January 7.
7 The defective guitar was returned to IMC for a credit on account
16 Sold 21 guitars at $300 on account, terms 2/10, n/30
18 Purchased 10 guitars from IMC for $250 each on account, terms n/30
25 Paid the full amount owing to IMC.
26 Collected the balance owing from the Jan 16 sale
Instructions
Using the perpetual inventory system, prepare the journal entries to record Klondike Music’s transactions.
Question 2 – 12 marks
The adjusted trial balance of Small Book Company appears below. The company uses a perpetual inventory system. All accounts have normal balances.
Instructions
Prepare the end of the year closing journal entries.
SMALL BOOK COMPANY
Adjusted Trial Balance
Year Ended December 31, 2011
Accounts payable 12,000
Accounts receivable 15,000
Accumulated depreciation—equipment 20,000
Cash $ 3,400
Cost of goods sold 140,000
Equipment 150,000
GST payable 1,400
GST recoverable 1,000
J. Small, capital 132,000
J. Small, drawings 20,000
Merchandise inventory 35,000
Prepaid rent expense………………………………………………… 2,500
Rent expense 16,000
Salaries expense 21,000
Sales 250,000
Sales returns & allowances 14,000
Unearned revenue……………………………………………………. 2,000
Question 3 – 15 marks
Workman Art Sales uses the perpetual inventory system. On September 30, 2011, the company’s year end, a physical count was taken of the inventory on hand. The cost of the inventory on hand was determined to be $325,400. However, the accountant has questions about the following items:
a) On the store shelves, the staff counted 7 paintings held by Workman on consignment from a local artist. The paintings are included on the inventory count at a cost of $4,200.
b) On September 30, a shipment of goods was sent to a customer, FOB destination. The cost of the goods shipped is $7,800, and freight, which is to be paid by Workman, will cost $200. These items are not included in the inventory count.
c) On October 2, a freight company delivered goods that cost $10,000 to Workman’s warehouse. The goods had been shipped by the vendor on September 29, FOB shipping point. Freight on this shipment will amount to $500 and will be paid by the appropriate party. The goods are not included on the inventory count.
d) On September 30 a loyal customer visited Workman’s retail shop and asked that certain items be set aside for him. The goods set aside have a cost of $1,300. The customer intends to let Workman know no later than October 2 whether or not he wishes to finalize the sale and have the goods shipped to his home. The freight will cost $50 and will be paid by Workman. The sales person was fairly sure the customer will take the items; and so prepared the sales invoice on September 30. The items are not included on the inventory count.
e) In Workman’s warehouse is merchandise costing $5,000 that was purchased in September and found to be defective. Workman’s purchasing manager has arranged with the vendor to accept return of the goods and has packaged them for return shipment. The vendor processed a credit to Workman’s account on September 28, and has arranged to have the goods picked up on October 1. The items are included on the inventory count.
Instructions:
Calculate the correct inventory balance at September 30, 2011. For each of the above items, explain the basis of your treatment of the item.
Question 4 – 20 marks
O’Meara Sales sells golf bags and uses a perpetual inventory system. O’Meara’s inventory records show that at March 1, there were 30 units on hand at a cost of $135 each. Transactions related to purchase and sale of golf bags in March were as follows:
Per unit
Date Transaction Units Cost Sales price
Mar 2 Purchase 17 $127
Mar 5 Sale 10 $150
Mar 15 Purchase 12 $125
Mar 20 Purchase 5 $120
Mar 30 Sale 50 $150
Instructions:
(a) For each of the following cost formulas, calculate the ending inventory as at March 31 and the cost of goods sold for the month of March.
i. FIFO
ii. Average
(b) Calculate the gross profit and gross profit margin that will be reported under each of the two cost formulas.
Question 5 – 10 marks
The petty cash fund of $300 for Wang Company includes the following on December 31, 2011:
Cash $93.60
Petty cash receipts
Freight In $89.40
Postage 55.00
Balloons for a special occasion 27.00
Meals 30.00
Instructions
1. Briefly describe when the petty cash fund should be replenished. Because there is cash on hand, is there a need to replenish the fund at year end on December 31? Explain.
2. Prepare in general journal form the entry to replenish the fund. The company uses a perpetual inventory system
3. On December 31, the office manager gives instructions to increase the petty cash fund by $50. Make the appropriate journal entry.
Question 6 – 25 marks
The cash balance per books for the Senjavarah Company on September 30, 2011 is $10,740.93. The following cheques and receipts were recorded for the month of October, 2011:
Cheques Receipts
No. Amount No. Amount Amount Date
17 $372.96 22 $ 578.84 $843.86 Oct. 5
18 $780.62 23 $1,687.50 $941.54 Oct. 21
19 $157.00 24 $ 921.30 $808.58 Oct. 27
20 $587.50 25 $ 246.03 $967.00 Oct. 30
21 $234.15
In addition, the bank statement for the month of October is presented below:
—————————————————————————————————————————
Cheques and other debits Deposits Date Balance
———————————————————————
No. Amount No. Amount No. Amount
—————————————————————————————————————————
Sep. 30 $5,404.84
14 $148.29 17 $372.96 22 $578.84 $5,484.38 Oct. 1 $9,789.13
18 708.62 24 921.30 843.86 Oct. 8 $9,003.07
19 157.00 25 246.03 941.54 Oct. 23 $9,541.58
21 234.15 15.00 SC 808.58 Oct. 29 $10,101.01
250.00 NSF 1,200.00 CM Oct. 31 $11,051.01
—————————————————————————————————————————
Symbols: NSF (Not sufficient funds) SC (Service charge) CM (Credit memo)
—————————————————————————————————————————
Cheque No. 18 was correctly written for $708.62 for a payment on account. The NSF cheque was from S. Horn, a customer, in settlement of an accounts receivable. An entry had not been made for the NSF cheque. The credit memo is for an EFT from a customer account.
Instructions
(a) Prepare a bank reconciliation at October 31, 2011.
(b) Prepare the adjusting journal entries required by the bank reconciliation.
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