Question
Waikato Ltd, a clothing retailer, sells both seasonal and all-season clothes. The company uses the perpetual inventory method and the First In, First Out cost
Required Purchased 2000 sweaters on credit, costing $10 per unit. Purchased 1000 sweaters on credit, costing $11 per unit. Purchased 1500 sweaters on credit, costing $12 per unit. Sold 2500 sweaters for cash. Sold 1500 sweaters for cash.
a. Give journal entries to record the above transactions in the books of Waikato Ltd. (9 marks) Answer Date Debit Amount ($) Credit Amount ($) [Please keep one row blank between two journal entries. You may increase the number of 2
b. Give the journal entry if sweaters are to be written down to their net realizable value. Show the calculation. (3 Marks)
c. Prepare the relevant sections of the income statement and the statement of financial position and present the effects of these transactions and inventory policies in these two statements, assuming that the sweaters are the only inventory left as at the year end. (8 Marks) Answer Date Debit amount ($) Credit Amount ($) Answer Waikato Ltd Income statement Date/Year: $ Waikato Ltd Statement of Financial Position Date/Year:
d. Write down the inventory accounting policy note for Waikato Ltd for the year ended 31 July 2020. (2 Marks)
e. Briefly explain the usefulness of the inventory figure resulting from the application of lower of cost and net realizable value.
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