Question 1:
During 2022, its first year of operations, the XYZ Company sold merchandise for
1,500,000cash.ThismerchandisecostXYZ
1,500,000cash.ThismerchandisecostXYZ900,000 (60% of the selling price).
Customers returned $80,000 of sales during 2022. XYZ uses a perpetual inventory
system. Record the journal entry for (i) Sales and (ii) Sales Returns.
Question 2:
During 2023, its first year of operations, the ABC Company sold merchandise for
3,000,000cash.ThismerchandisecostABC
3,000,000cash.ThismerchandisecostABC1,800,000 (60% of the selling price).
Customers returned $200,000 of sales during 2023. ABC uses a perpetual inventory
system. Record the journal entry for (i) Sales and (ii) Sales Returns.
Question 1:
A manufacturer, GreenTech Inc., sells its products directly to consumers. The company
offers a one-year assurance-type warranty against defects for its products and an
extended 3-year service-type warranty for an additional cost of
150∗∗.Acustomerpurchasestheextendedwarrantyalongwitht
heproductandpaysatotalconsiderationof∗∗
150∗∗.Acustomerpurchasestheextendedwarrantyalongwiththeproductandpaysat
otalconsiderationof∗∗3,150 (
3,000fortheproductand
3,000fortheproductand150 for the service-type warranty).
Requirements:
1. Record the journal entry on the date of sale.
2. Record the journal entry on the sale date to recognize the assurance-type
warranty liability, estimated to be $80.
3. Record the journal entry for a claim against the assurance-type warranty during
Year 1, which involves 2 hours of labor at
4. 15perhour∗∗and∗∗partscosting
5. 15perhour∗∗and∗∗partscosting50.
Question 2:
A manufacturer, BlueWave Ltd., sells its products directly to consumers. The company
offers a one-year assurance-type warranty against defects for its products and an
extended 5-year service-type warranty for an additional cost of
300∗∗.Acustomerpurchasestheextendedwarrantyalongwitht
heproductandpaysatotalconsiderationof∗∗
300∗∗.Acustomerpurchasestheextendedwarrantyalongwiththeproductandpaysat
otalconsiderationof∗∗6,300 (
6,000fortheproductand
6,000fortheproductand300 for the service-type warranty).
Requirements:
1. Record the journal entry on the date of sale.
2. Record the journal entry on the sale date to recognize the assurance-type
warranty liability, estimated to be $120.
3. Record the journal entry for a claim against the assurance-type warranty during
Year 1, which involves 1.5 hours of labor at
4. 25perhour∗∗and∗∗partscosting
5. 25perhour∗∗and∗∗partscosting75.
Question 1:
On June 1, 2024, the ABC Electronics Company sold cameras to XYZ Sports. ABC
agreed to accept a $500,000, 6-month, 10% p.a. note in payment for the cameras.
Interest is receivable at maturity.
Requirements:
1. Record the journal entry in ABC’s books on the date of sale (June 1, 2024).
2. Record the journal entry on the date of cash receipt (December 1, 2024).
Question 2:
On July 1, 2024, the PQR Tech Company sold cameras to LMN Sports. PQR agreed to
accept a $900,000, 6-month, 8% p.a. note in payment for the cameras. Interest is
receivable at maturity.
Requirements:
1. Record the journal entry in PQR’s books on the date of sale (July 1, 2024).
2. Record the journal entry on the date of cash receipt (January 1, 2025).
Question 1:
The Green Widgets Company manufactures widgets that it sells to retailers. On June 1,
2024, the company sold widgets to BlueMart Co. Green Widgets accepted a six-month,
800,000non−interest−bearingnote∗∗inexchangefordeliveri
nggoodsthathaveacashsalespriceof∗∗
800,000non−interest−bearingnote∗∗inexchangefordeliveringgoodsthathaveaca
shsalespriceof∗∗760,000.
Requirements:
1. Record the journal entry in Green Widgets’ books on the date of sale (June 1,
2024).
2. Record the journal entry on the date of cash receipt (December 1, 2024).
Question 2:
The Red Gadgets Company manufactures widgets that it sells to retailers. On July 1,
2024, the company sold widgets to SuperStore Co. Red Gadgets accepted a six-month,
1,200,000non−interest−bearingnote∗∗inexchangefordelive
ringgoodsthathaveacashsalespriceof∗∗
1,200,000non−interest−bearingnote∗∗inexchangefordeliveringgoodsthathavea
cashsalespriceof∗∗1,140,000.
Requirements:
1. Record the journal entry in Red Gadgets’ books on the date of sale (July 1, 2024).
2. Record the journal entry on the date of cash receipt (January 1, 2025).
Question 1:
The following information is available for the ABC Corporation in USD:
● Inventory purchases (on account): $120,000
● Freight charges on purchases (paid in cash): $8,000
● Inventory returned to suppliers (for credit): $10,000
● Sales (on account): $200,000
● Sales Returns: $15,000
Requirement:
Applying the periodic inventory system, prepare the journal entries that summarize the
transactions that created these balances.
Question 2:
The following information is available for the XYZ Corporation in USD:
● Inventory purchases (on account): $180,000
● Freight charges on purchases (paid in cash): $12,000
● Inventory returned to suppliers (for credit): $15,000
● Sales (on account): $300,000
● Sales Returns: $20,000
Requirement:
Applying the periodic inventory system, prepare the journal entries that summarize the
transactions that created these balances.
Question 1:
The following information is available for the M Corporation:
● Inventory purchases (on account): $200,000
● Freight charges on purchases (paid in cash): $15,000
● Inventory returned to suppliers (for credit): $10,000
● Sales (on account): $400,000
● Cost of inventory sold: $180,000
Requirement:
Applying a perpetual inventory system, prepare the journal entries that summarize the
transactions that created these balances.
Question 2:
The following information is available for the N Corporation:
● Inventory purchases (on account): $350,000
● Freight charges on purchases (paid in cash): $25,000
● Inventory returned to suppliers (for credit): $30,000
● Sales (on account): $600,000
● Cost of inventory sold: $320,000
Requirement:
Applying a perpetual inventory system, prepare the journal entries that summarize the
transactions that created these balances
Question 1 (Based on Part a):
The Greenfield Company offers 30 days of credit to its customers. The company began 2023 with
the following balances in its accounts:
● Accounts receivable: $400,000
● Allowance for uncollectible accounts: ($40,000)
● Net accounts receivable: $360,000
During 2023, sales on credit were
1,500,000∗∗,cashcollectionsfromcustomerswere∗∗
1,500,000∗∗,cashcollectionsfromcustomerswere∗∗1,450,000, and actual write-offs of
accounts were $30,000.
Below is the Accounts Receivable Aging on December 31, 2023:
Age Group Amount Estimated Percent Uncollectible
0–60 days $300,000 5%
61–90 days $90,000 10%
91–120 days $40,000 20%
Over 121 days $15,000 40%
Required:
1. Determine the balances in accounts receivable and allowance for uncollectible accounts at
the end of 2023.
2. Determine the bad debt expense for 2023.
3. Prepare journal entries to write off receivables and to recognize bad debt expense for 2023.
Question 2 (Based on Part b):
SportsPro, Inc., is a leading manufacturer of sports apparel, shoes, and equipment. The company’s
financial statements contain the following information ($ in millions):
Year Ending December 31, 2025:
● Accounts receivable, NET: $4,200
● Sales revenue: $38,500
● Allowance for uncollectible accounts: $25
● Bad Debts: $50
Year Ending December 31, 2024:
● Accounts receivable, NET: $3,800
● Sales revenue: $36,000
● Allowance for uncollectible accounts: $30
Assume that all sales are made on a credit basis.
Required:
1. What is the amount of gross (total) accounts receivable due from customers at the end of
2025 and 2024?
2. What is the amount of bad debt write-offs during 2025?
3. Analyze changes in the gross accounts receivable account to calculate the amount of cash
received from customers during 2025.
Question 1 (Based on Part a):
XYZ Company sells a group of its receivables with a face value of $150,000 to a factor.
● The factoring fee is 2%.
● The factor holds back 6% of the face value of the receivables to cover customer
returns.
● The weighted average number of days to the receivables’ due dates is 30 days.
● The sale is with recourse, and the Fair Value of the recourse liability is $4,500.
Requirement:
1. Record the journal entry for the above transaction in XYZ’s books.
2. If the factor subsequently collects all of the receivables (i.e., NIL recourse
liability), record the journal entry.
3. If the factor subsequently collects part of the receivables (say $3,000 turned out
to be uncollectible), record the journal entry.
4. If a portion of sales (say
5. 3,000∗∗representedbyreceivables)isreturned,andthefa
ctorpaysXYZ∗∗
6. 3,000∗∗representedbyreceivables)isreturned,andthefactorpaysXYZ∗∗4,0
00, record the journal entry.
Question 2 (Based on Part b):
Glow Beauty Company sells its products to customers on a credit basis. An adjusting
entry for bad debt expense is recorded only at December 31, the company’s fiscal year-
end.
The 2022 balance sheet disclosed the following:
● Receivables, net of allowance for uncollectible accounts of
● 25,000∗∗:∗∗
● 25,000∗∗:∗∗400,000
During 2023, credit sales were
2,000,000∗∗,cashcollectionsfromcustomerswere∗∗
2,000,000∗∗,cashcollectionsfromcustomerswere∗∗1,900,000, and
40,000∗∗inaccountsreceivablewerewrittenoff.Inaddition,∗∗
40,000∗∗inaccountsreceivablewerewrittenoff.Inaddition,∗∗5,000 was collected
from a customer whose account was written off in 2022.
An aging of accounts receivable at December 31, 2023, reveals the following:
Age Group % of Y.E. Receivables in Group % Uncollectible
0–60 days 60% 3%
61–90 days 25% 10%
91–120 days 10% 20%
Over 120 5% 50%
days
Requirement:
1. Prepare summary journal entries to account for the 2023 write-offs and the
collection of the receivable previously written off.
2. Prepare the year-end adjusting entry for bad debts according to each of the
following situations:
a. Bad debt expense is estimated to be 2% of credit sales for the year.
b. The allowance for uncollectible accounts is estimated to be 8% of the year-end
balance in accounts receivable.
c. The allowance for uncollectible accounts is determined by an aging of
accounts receivable.
Question 1 (Based on Part i, ii, and iii):
(i) Explain LIFO Reserve (2 marks).
(ii) Explain LIFO Liquidation (3 marks).
(iii) Sparkle Corporation uses perpetual FIFO throughout the year to maintain internal
records. These amounts are adjusted to LIFO for financial reporting purposes.
Assume the company began 2022 with a balance of:
● LIFO Reserve Account (2022 opening balance): $400,000 Credit
By the end of 2022, the ending inventory (EI) per LIFO was
380,000∗∗,andperFIFOwas∗∗
380,000∗∗,andperFIFOwas∗∗900,000.
Requirement:
Determine the LIFO Reserve adjustment required at the end of 2022 and provide the
journal entry (5 marks).
Question 2 (Based on Part OR):
On January 1, 2022, the Brighton Company adopted the dollar-value LIFO method. The
inventory value on this date was $600,000. Inventory data for 2022 through 2025 are as
follows:
Date Ending Inventory at Year-End Costs ($) Cost Index
12/31/202 $650,000 1.10
2
12/31/202 $700,000 1.15
3
12/31/202 $750,000 1.20
4
12/31/202 $800,000 1.25
5
Requirement:
Calculate Brighton’s ending inventory for the years 2022 through 2025 using the dollar-
value LIFO method.
Question 1 (Based on Part 1):
Maharashtra Wholesale uses LIFO to value its inventory. The company sells several
inventory items. Details of two inventory items (X and Y) are as follows:
Item X Y
Hist. Cost $12 $18
Selling Price $25 $28
Cost to Sell $3 $2
Profit % 28% 25%
Replacement $13 $17.
Cost 5
Requirement:
Determine the ending inventory carrying value for Items X and Y using the lower of cost
or market (LCM) rule.
Question 2 (Based on Part OR):
The June 30, 2025, year-end trial balance for Bexley Company contained the following
information:
Account Debit Credit
Inventory July 1, 28K
2024
Sales Revenue 420K
Sales Returns 15K
Purchases 260K
Purchase Discounts 8K
Purchase Returns 12K
Freight-in 20K
In addition, you determine that the June 30, 2025, inventory balance is $45,000.
Requirement:
Calculate the cost of goods sold for the Bexley Company for the year ending June 30,
2025.
Question 3 (Based on Part II):
The M Company’s inventory balance on December 31, 2022, was $180,000 (based on a
12/31/2022 physical count) before considering the following transactions:
1. Goods shipped to M Co. f.o.b. destination on December 22, 2022, were received
on January 6, 2023. The invoice cost was $35,000.
2. Goods shipped to M Co. f.o.b. shipping point on December 29, 2022, were
received on January 7, 2023. The invoice cost was $20,000.
3. Goods shipped from M Co. to a customer f.o.b. destination on December 28,
2022, were received by the customer on January 4, 2023. The sales price was
4. 50,000∗∗,andthemerchandisecostwas∗∗
5. 50,000∗∗,andthemerchandisecostwas∗∗25,000.
6. Goods shipped from M Co. to a customer f.o.b. destination on December 27,
2022, were received by the customer on December 31, 2022. The sales price was
7. 30,000∗∗,andthemerchandisecostwas∗∗
8. 30,000∗∗,andthemerchandisecostwas∗∗15,000.
Requirement:
Determine the correct inventory amount to be reported in M’s 2022 balance sheet
Question 1:
You are the CFO of Skyline Wholesale Beverage Company, which purchases soft drinks
from producers and then sells them to retailers. Your company began the year with
merchandise inventory of $100,000 on hand. Your company uses the gross method to
record inventory transactions.
During the year, additional inventory transactions include:
1. Purchases of merchandise on account totaled $500,000, with terms 2/10, n/30.
2. Freight charges paid were $12,000.
3. Merchandise with a cost of $15,000 was returned to suppliers for credit.
4. All purchases on account were paid within the discount period.
5. Sales on account totaled
6. 700,000∗∗.Thecostofsoftdrinkssoldwas∗∗
7. 700,000∗∗.Thecostofsoftdrinkssoldwas∗∗450,000.
8. Inventory remaining on hand at the end of the year totaled $140,000.
Requirement:
1. Record the necessary journal entries for the transactions according to the
perpetual inventory system using the gross method.
2. Record the above transactions according to the periodic inventory system using
the gross method.
3. Mention 2 advantages of using the perpetual system over the periodic system.
Question 2:
You are the CFO of Oceanview Wholesale Beverage Company, which purchases soft
drinks from producers and then sells them to retailers. Your company began the year
with merchandise inventory of $150,000 on hand. Your company uses the gross
method to record inventory transactions.
During the year, additional inventory transactions include:
1. Purchases of merchandise on account totaled $700,000, with terms 1/10, n/30.
2. Freight charges paid were $18,000.
3. Merchandise with a cost of $25,000 was returned to suppliers for credit.
4. All purchases on account were paid within the discount period.
5. Sales on account totaled
6. 900,000∗∗.Thecostofsoftdrinkssoldwas∗∗
7. 900,000∗∗.Thecostofsoftdrinkssoldwas∗∗600,000.
8. Inventory remaining on hand at the end of the year totaled $200,000.
Requirement:
1. Record the necessary journal entries for the transactions according to the
perpetual inventory system using the gross method.
2. Record the above transactions according to the periodic inventory system using
the gross method.
3. Mention 2 advantages of using the perpetual system over the periodic system.
Question 1:
You are the CFO of Brighton Co. The following details are available in respect of
inventory purchases and sales during 2025:
Beginning Inventory (Jan 1, 2025):
● 10,000 units at $6.00/unit
Purchases:
● Jan 20: 3,000 units at $6.50/unit
● Mar 25: 7,000 units at $7.00/unit
● Oct 10: 5,000 units at $7.50/unit
Sales:
● Jan 15: 5,000 units at $9.00/unit
● Apr 20: 4,000 units at $9.00/unit
● Nov 25: 6,000 units at $9.00/unit
Requirement:
Using the perpetual system, determine Gross Profit, Cost of Goods Sold (COGS), and
Ending Inventory (EI) under the following inventory costing methods:
1. Average Cost
2. FIFO
3. LIFO
Question 2:
You are the CFO of Oceanview Co. The following details are available in respect of
inventory purchases and sales during 2026:
Beginning Inventory (Jan 1, 2026):
● 12,000 units at $5.00/unit
Purchases:
● Jan 18: 4,000 units at $5.50/unit
● Mar 30: 8,000 units at $6.00/unit
● Oct 20: 7,000 units at $6.50/unit
Sales:
● Jan 12: 6,000 units at $8.00/unit
● Apr 25: 5,000 units at $8.00/unit
● Nov 30: 7,000 units at $8.00/unit
Requirement:
Using the perpetual system, determine Gross Profit, Cost of Goods Sold (COGS), and
Ending Inventory (EI) under the following inventory costing methods:
1. Average Cost
2. FIFO
3. LIFO
