accounting 218


Carmen’s Household Appliances

carries an inventory of clocks and other household items. The business began the second quarter of 2013 with 15 clocks (Lomani Quartz Brand) at a total cost of $36,000. The following transactions, relating to the clocks (Lomani Quartz Brand), took place during the quarter: April 5

Purchased 30 clocks at a cost of $2,490 each.



April 30



The sales for April were 18 clocks which yielded


total sales revenue of $81,000.

May 1



A new batch of 15 clocks was purchased


on account at a cost of $2,250 each. These units attracted an additional shipping cost of $350 on each clock. It is customary for Carmen’s Household Appliances to include freight-in as part of the cost of the units in their inventory record.

May 16



Upon inspection, five (5) of the clocks purchased on May 1 were found to be badly soiled and were returned to the supplier.



May 30



During the month 20 clocks were sold at a price of $5,000 each.



June 2



Ariana Stone, a customer to whom 5 clocks were sold at the


close of business on May 30th, returned 2 of the clocks, as she had purchased an incorrect quantity.

June 12



To meet the increased demand for the commodity, a further 14 clocks were purchased at a cost of $3,000 each, however a


trade discount of 5% was received on each clock.

June 30



22 clocks were sold during June at a unit selling price of $5,300.



June 30



A physical count of inventory was carried out at the close of business, which revealed that there were only 8 clocks on hand.








Prepare a

perpetual inventory ledger card for clocks (Lomani Quartz Brand), clearly showing the value of ending inventory at June 30th, 2013, and the total amount to be assigned to cost of goods sold for the period. (20 marks)



Given that marketing & selling and administrative costs for the quarter were $16,550 and $23,710 respectively, prepare an income statement for Carmen’s Household Appliances for the period, to determine the profit earned on the Lomani Quartz clocks. (6 mark






You are told that 8 of the clocks sold on May 30

th, 2013 were on account. State the journal entries necessary to record the transactions on May 1st and May 30th , assuming the company uses a: – Periodic inventory system


– Perpetual inventory system

(8 marks) iv) Assuming that the business used the average cost method, what would be the value of the units sold on April 30? (Show all workings to explain your answer) (3 marks)




Briefly explain the impact of inflation on ending inventory, cost of goods sold and gross profit under both the FIFO and LIFO methods of inventory valuation. (



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