Waikato Ltd, a clothing retailer, sells both seasonal and all-season clothes. The company uses the perpetual inventory
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 flow assumption. The company has a clearance sale policy regarding seasonal clothes. Seasonal clothing items are to be sold at a 50% discount of the normal selling price during the final month of each season. The company completes purchasing seasonal clothes before the start of each season. It had the following transactions for sweaters during the period of May-July 2020. The normal selling price of each sweater is $20. It had no beginning inventory of sweaters. The winter season starts in June and ends on 31August. The financial year ends on 31 July 2020. 10 May 2020 14 May 2020 20 May 2020 June 2020 July 2020 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 $12 per unit. Sold 2500 sweaters for cash. Sold 1500 sweaters for cash.
a. Give journal entries to record the above transactions in the books of Waikato Ltd. Answer Date Debit Amount ($) Credit Amount ($) [Please keep one row blank between two journal entries. You may increase the number of
b. Give the journal entry if sweaters are to be written down to their net realizable value. Show the calculation.
c. Prepare the relevant sections of the income statement and the statement of financial position and present the effects of these transactions and inventory policies in these two statements, assuming that the sweaters are the only inventory left as at the year end. Answer Date Debit amount ($) 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.
e. Briefly explain the usefulness of the inventory figure resulting from the application of lower of cost and net realizable value.
Expert Answer:
JOURNAL ENTRIES Debit Credit May 10 Merchandise Inventory 20000 Accounts Payable 20000 Purchased 2000 sweaters on credit costing 10 per unit May 14 Merchandise Inventory 11000 Accounts Payable 11000 P... View the full answer
