Module 3 Homework Answer Key

Wild Book
Module 3
CH 4 Exercise 6, 7
CH 5 Exercise 3, 4, 5

Exercise 4-6 (30 minutes)

1. BUYER- Santa Fe

a) Credit Purchase
Merchandise Inventory.................................... 24,000
Accounts Payable..................................... 24,000
Purchased merchandise on credit.

b) Payment within Discount Period

Accounts Payable............................................. 24,000
Merchandise Inventory............................. 720
Cash*.......................................................... 23,280
Paid within 3% discount period.
*$24,000 x (100%-3%)

c) Payment after Discount Period

Accounts Payable............................................. 24,000
Cash........................................................... 24,000
Paid after 3% discount period.

2. SELLER – Mesa

a) Credit Sale
Accounts Receivable....................................... 24,000
Sales........................................................... 24,000
Sold merchandise on account.

Cost of Goods Sold ......................................... 16,000

Merchandise Inventory ............................ 16,000
Record cost of sale.

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b) Collection within Discount Period

Cash*.................................................................. 23,280
Sales Discounts................................................ 720
Accounts Receivable................................ 24,000
Cash received within discount period.
*$24,000 x (100%-3%)

c) Collection after Discount Period

Cash................................................................... 24,000
Accounts Receivable................................ 24,000
Cash received after discount period.

Exercise 4-7 (25 minutes)

1. Entries for Sydney (BUYER):

May 11 Merchandise Inventory .................................. 40,000
Accounts Payable.................................... 40,000
Purchased goods.

11 Merchandise Inventory .................................. 345

Cash.......................................................... 345
Paid shipping charges on purchased goods.

12 Accounts Payable........................................... 1,400

Merchandise Inventory ........................... 1,400
Returned goods.

20 Accounts Payable*.......................................... 38,600

Merchandise Inventory**......................... 1,158
Cash.......................................................... 37,442
Paid balance within discount period.
*$40,000-$1,400
**($40,000-$1,400) x 3%

2. Entries for Troy (SELLER):

May 11 Accounts Receivable...................................... 40,000
Sales.......................................................... 40,000

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 Sold goods.
11 Cost of Goods Sold......................................... 30,000
Merchandise Inventory............................ 30,000
Record cost of sale.

12 Sales Returns and Allowances...................... 1,400

Accounts Receivable............................... 1,400
Accepted returns.
12 Merchandise Inventory .................................. 1,050
Cost of Goods Sold................................. 1,050
Returned goods to inventory.

20 Cash.................................................................. 37,442
Sales Discounts*............................................. 1,158
Accounts Receivable**............................ 38,600
Received payment within discount period.
*($40,000-$1,400) x 3%
**$40,000-$1,400

Exercise 5-3 (45 minutes)

a. Specific identification
Ending inventory—180 units from January 30, 5 units from January 20, and 15
units from beginning inventory
Ending Cost of
Specific Identification Inventory Goods Sold

(180 x $4.50) + (5 x $5.00) + (15 x $6.00)......... $ 925

$1,950 [Total Goods Available] - $925 [Ending Inventory]....... $1,025

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Exercise 5-3 (continued)

b. Weighted Average—Perpetual

Date Goods Purchased Cost of Goods Sold Inventory Balance

1/1 140 @ $6.00 = $ 840.00
1/10 100 @ $6.00 = $ 600.00 40 @ $6.00 = $ 240.00
1/20 60 @ $5.00 40 @ $6.00
= $ 540.00
60 @ $5.00
(avg. cost is $5.40)
1/25 80 @ $5.40 = $ 432.00 20 @ $5.40 = $ 108.00
1/30 180 @ $4.50 20 @ $5.40
= $ 918.00
$1,032.00 180 @ $4.50
(avg. cost is $4.59)

c. FIFO—Perpetual

Date Goods Purchased Cost of Goods Sold Inventory Balance

1/1 140 @ $6.00 = $ 840.00
1/10 100 @ $6.00 = $ 600.00 40 @ $6.00 = $ 240.00
1/20 60 @ $5.00 40 @ $6.00
= $ 540.00
60 @ $5.00
1/25 40 @ $6.00 = $ 440.00
40 @ $5.00 20 @ $5.00 = $ 100.00
1/30 180 @ $4.50 20 @ $5.00
$1,040.00 180 @ $4.50 = $ 910.00

d. LIFO—Perpetual

Date Goods Purchased Cost of Goods Sold Inventory Balance

1/1 140 @ $6.00 = $ 840.00
1/10 100 @ $6.00 = $ 600.00 40 @ $6.00 = $ 240.00
1/20 60 @ $5.00 40 @ $6.00 = $ 540.00

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 60 @ $5.00
1/25 60 @ $5.00 = $ 420.00
20 @ $6.00 20 @ $6.00 = $ 120.00
1/30 180 @ $4.50 20 @ $6.00
$1,020.00 180 @ $4.50 = $ 930.00

Exercise 5-3 (Concluded)

Alternate Solution Format for FIFO and LIFO Perpetual

Ending Cost of

Computations Inventory Goods Sold

c. FIFO

(180 x $4.50) + (20 x $5.00)............................................... $ 910.00

(100 x $6.00) + (40 x $6.00) + (40 x $5.00)....................... $1,040.00

d. LIFO

(20 x $6.00) + (180 x $4.50)............................................... $ 930.00

(100 x $6.00) + [(60 x $5.00) + (20 x $6.00)]..................... $1,020.00

Exercise 5-4 (20 minutes)

LAKER COMPANY
Income Statements
For Month Ended January 31
Specific Weighted
Identification Average FIFO LIFO

Sales......................................
$2,700.00 $2,700.00 $2,700.00 $2,700.00

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 (180 units x $15 price)

Cost of goods sold...............1,025.00 1,032.00 1,040.00 1,020.00

Gross profit...........................1,675.00 1,668.00 1,660.00 1,680.00
Expenses...............................1,250.00 1,250.00 1,250.00 1,250.00
Income before taxes............. 425.00 418.00 410.00 430.00
Income tax expense (40%)......... 170.00 167.20 164.00 172.00
Net income............................
$ 255.00 $ 250.80 $ 246.00 $ 258.00

1. LIFO method results in the highest net income of $258.00.

2. Weighted average net income of $250.80 falls between the FIFO net
income of $246.00 and the LIFO net income of $258.00.

3. If costs were rising instead of falling, then the FIFO method would yield
the highest net income.

Exercise 5-5A (35 minutes)

Ending Cost of
Periodic Inventory Computations Inventory Goods Sold

a. Specific Identification—Periodic
(180 x $4.50) + (5 x $5.00) + (15 x $6)...................$ 925.00
$1,950 [Total Goods Available] - $925 [Ending Inventory]............ $1,025.00

b. Weighted Average—Periodic
($1,950 / 380 units = $5.13* average cost per unit)
200 x $5.13..............................................................$1,026.00

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 180 x $5.13.............................................................. $ 923.40

c. FIFO—Periodic
(180 x $4.50) + (20 x $5.00)....................................$ 910.00

(140 x $6.00) + (40 x $5.00).................................... $1,040.00

d. LIFO—Periodic
(140 x $6.00) + (60 x $5.00)....................................$1,140.00
(180 x $4.50)........................................................... $ 810.00

*rounded to dollars and cents