Alpha company is a trading company that purchases and sales fruits and vegetables. During the year 2020, the company shows
Alpha company is a trading company that purchases and sales fruits and vegetables. During the year 2020, the company shows the following transactions and events:
1) The company uses the perpetual inventory system to account for its inventory at December 31, 2020 and its financial statements are disclosed without delay.
2) The company records sales when cash is received from customers and delay expenses for the next year.
3) For credit purchase transactions, the accountant debit (merchandise inventory) and credit (accounts receivable).
4) The company assumes the freight charges to its customers. The accountant debit (freight in expenses) and credit (merchandise inventory).
5) One customer returned fruits to Alpha that were damaged. The accountant of the company debit (purchase returns) and credit (accounts payable).
6) The cost of goods sold is determined after each sale as follow: beginning inventory - purchases + ending inventory.
7) Net profit is computed by subtracting operating expenses from the cost of goods sold.
8) The accountant records merchandise inventory (stock) in the expenses section of the income statement.
9) The company assumes that physical inventory is not important as it uses the perpetual inventory system during the year.
10) The driver of the company has access to the inventory, he delivers the merchandise, receives the cash and has access to the company books.
For each case, identify the anomaly and propose the correct accounting treatment/answer:
Question 2: (10 Marks)
XYZ Co uses the periodic inventory system to account for inventories. Its beginning inventory is 500 units at 5 $ each. Information related to XYZ Company's inventory at October 31 is given below:
1. Compute the cost of ending inventory and the cost of goods sold under:
a. FIFO method
b. LIFO method
c. The weighted average