How is the net cost of inventory calculated?
The net cost of inventory includes the beginning inventory, the purchases made during the year, and the closing inventory.
The term “inventory” refers to the goods or products stocked by a business entity with an intent to resell them and generate revenues for running the business activities.
The net cost of inventory is computed as follows:
The purchases should be net, i.e., purchase returns must be subtracted from the purchase account balance.
The adjusted trial balance of Rockin Robbin Dance Company at April 30, 2018, follows:
ROCKIN ROBBIN DANCE COMPANY
Adjusted Trial Balance
April 30, 2018
Account Title Debit Credit
Accounts Receivable 38,000
Merchandise Inventory 17,800
Office Supplies 850
Accumulated Depreciation-Furniture $8,300
Accounts Payable 14,100
Salaries Payable 1,000
Unearned Revenue 6,500
Notes Payable, long-term 12,000
Common Stock 5,000
Retained Earnings 36,150
Sales Revenue 178,500
Cost of Goods Sold 83,700
Selling Expense 19,000
Administrative Expense 16,000
Interest Expense 1,900
Total $261,550 $261,550
1. Prepare Rockin Robbin’s multi-step income statement for the year ended April 30, 2018.
2. Journalize Rockin Robbin’s closing entries.
3. Prepare a post-closing trial balance as of April 30, 2018.
Journalize the following transactions that occurred in March 2018 for Double Company. Assume Double uses the periodic inventory system. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name. Double estimates sales returns at the end of each month.
Mar. 3 Purchased merchandise inventory on account from Sidecki Wholesalers, $5,500. Terms 2/15, n/EOM, FOB shipping point.
4 Paid freight bill of $70 on March 3 purchase.
4 Purchased merchandise inventory for cash of $1,100.
6 Returned $900 of inventory from March 3 purchase.
8 Sold merchandise inventory to Herrick Company, $3,400, on account. Terms 1/15, n/35.
9 Purchased merchandise inventory on account from Tex Wholesalers, $5,600. Terms 2/10, n/30, FOB destination.
10 Made payment to Sidecki Wholesalers for goods purchased on March 3, less return and discount.
12 Received payment from Herrick Company, less discount.
13 After negotiations, received a $500 allowance from Tex Wholesalers.
15 Sold merchandise inventory to Jesper Company, $1,700, on account. Terms n/EOM.
22 Made payment, less allowance, to Tex Wholesalers for goods purchased on March 9.
23 Jesper Company returned $300 of the merchandise sold on March 15.
25 Sold merchandise inventory to Salter for $1,000 on account. Terms of 1/10, n/30 was offered, FOB shipping point.
29 Received payment from Salter, less discount.
30 Received payment from Jesper Company, less return.
Camilia Communications reported the following figures from its adjusted trial balance for its first year of business, which ended on July 31, 2018:
Cash $ 2,900 Cost of Goods Sold $ 18,700
Selling Expenses 1,400 Equipment, net 9,500
Accounts Payable 4,300 Accrued Liabilities 1,800
Common Stock 4,365 Net Sales Revenue 29,200
Notes Payable, long-term 500 Accounts Receivable 3,200
Merchandise Inventory 1,100 Interest Expense 65
Administrative Expenses 3,300
1. Prepare Camilia Communication’s statement of retained earnings for the year ended July 31, 2018. Assume that there were no dividends declared during the year and that the business began on August 1, 2017.
2. Prepare Camilia Communication’s classified balance sheet at July 31, 2018. Use the report format.
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