Question

A. Prepare a Bank Reconciliation Statement for XYZ company that has:

• Bank statement of $10,000.

• Cash account of $8,500.

Additional information for the reconciliation:

• Deposit in transit.
• NSF Check.
• Outstanding check.
• Collections made by the bank.
• Bank error
• Books error

Required: provide an amount of each information to bring the adjusted balances to be equal.

B. A company that uses a perpetual inventory system made the following cash purchases and sales. There was no beginning inventory.

January 1:	Purchased 40 units at SAR10 per unit
February 5:	Purchased 40 units at SAR 12 per unit
March 16:	Sold 50 Units for SAR 15 per unit

Prepare general journal entries to record the March 16 sale using the

1. FIFO inventory valuation method.
2. LIFO inventory valuation method.

what is the gross margin for each method?

Answer 1

Ans. A

XYZ Company Bank Reconciliation Statement
Particulars	Amount	Amount
Cash balance as per bank statement		$10,000
Add: Deposit in transit		$2,000
		$12,000
Less: Outstanding checks	$2,500
Less: Bank errors	$0	$2500
Adjusted balance per bank		$9,500
Balance as per books		$8,500
Add: Receivable collected by bank		$1,200
		$9,700
Less: NSF check	$120
Less: Service charge	$40
Less: Error in company cash account	$40	$200
Adjusted balance per book		$9,500

Here, As provide an amount of each information the adjusted balances is $9,500.

Ans B

FIFO METHOD

Date	Particular	Receipt				Issue				Balance
		G R N No.	QTY	RATE	AMOUNT	S R N No.	QTY	RATE	AMOUNT	QTY	RATE	AMOUNT
1 Jan	Purchase		40	10	400					400	10	400
5 Feb	Purchase		40	12	480					400	10	400
										40	12	480
16 MARCH	Sale					40	10	400
						10	12	120		30	12	360

General journal entries to record the March 16 sale using FIFO Method

No.	Date	General Journal	Debit	Credit
1.	16 March	Account Receivable	$750
		Sale		$750
		(To record sale)
2.	16 March	Cost of goods sold	$520
		Inventory		$520
		(To record cost of goods sold)

(a) Cost of goods sold= Beginning Inventory Cost + Purchase Cost -Ending Inventory

=$0+[(40 x $10)+(40 x $12)]-$360

= $520

(b) Net Sale= 50 units x $15=$750

(c) Gross Profit= Net Sale - COGS

=$750-$520

=$230

(d) Gross profit margin(in percentage) =Net sale - COGS/Net sale x 100

=$750-$520/$750 x 100

    =30.67%

LIFO METHOD

Date	Particular	Receipt				Issue				Balance
		G R N No.	QTY	RATE	AMOUNT	S R N No.	QTY	RATE	AMOUNT	QTY	RATE	AMOUNT
1 Jan	Purchase		40	10	400					400	10	400
5 Feb	Purchase		40	12	480					400	10	400
										40	12	480
16 MARCH	Sale					40	12	480
						10	10	100		30	10	300

General journal entries to record the March 16 sale using LIFO Method

No.	Date	General Journal	Debit	Credit
1.	16 March	Account Receivable	$750
		Sale		$750
		(To record sale)
2.	16 March	Cost of goods sold	$580
		Inventory		$580
		(To record cost of goods sold)

(a)Cost of goods sold= Beginning Inventory Cost + Purchase Cost -Ending Inventory

=$0+[(40 x $10)+(40 x $12)]-$300

= $580

(b)Net Sale= 50 units x $15=$750

(c)Gross Profit= Net Sale - COGS

=$750-$580

=$170

(d)Gross profit margin(in percentage) =Net sale - COGS/Net sale x 100

=$750-$580/$750 x 100

=22.43%