Problem 6.

4 Journal entries — perpetual and periodic

inventory
systems

Assume that Merryland’s Markets had an inventory balance of $32 570 at the close of the last
accounting period. The following sales and purchase transactions are for the current period:
1. Purchased goods on account for $27 190.
2. Returned part of the above purchase that had an original purchase price of $1590.
3. Paid for the balance of the purchase in time to receive a discount of 2% of the purchase price.
4. Sold goods costing $24 900 for $49 820. Cash of $23 000 was received, with the balance due on
account.
5. Goods sold on credit for $2020 (cost $1010) were returned.

Required
A. In two columns, prepare general journal entries (ignoring GST) assuming:
1. a periodic inventory system is used
2. a perpetual inventory system is used.
B. Same as for requirement A, except that GST is to be added to the figures where appropriate.
C. Suppose that a physical count of the inventory at the end of the current period shows inventory
of $30 000 to be on hand. Present the entries (if any) required under each inventory system to
adjust for any discrepancy.
D. Comment on which system would best disclose any discrepancy.

A. (without GST)
MERRYLAND’S MARKETS
Periodic Perpetual
1. Purchases 27 190 Inventory 27 190
Accounts Payable 27 190 Accounts Payable 27 190

2. Accounts Payable 1 590 Accounts Payable 1 590

Purchases Returns & Allows. 1 590 Inventory 1 590

3. Accounts Payable 25600 0 Accounts Payable 25600

Discount Received 512 Discount Received 512
Cash at Bank 25 088 Cash at Bank 25 088

4. Cash 23 000 Cash 23 000

Accounts Receivable 26 820 Accounts Receivable 26 820
Sales 49 820 Sales 49 820

Cost of Sales 24 900

Inventory 24 900

5. Sales Returns & Allows 2 020 Sales Returns & Allows 2 020
Accounts Receivable 2 020 Accounts Receivable 2 020

Inventory 1 010
Cost of Sales 1 010
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B. (with GST)
MERRYLAND’S MARKETS
Periodic Perpetual
1. Purchases 27 190 Inventory 27 190
GST Receivable 2 719 GST Receivable 2 719
Accounts Payable 29 909 Accounts Payable 29 909

2. Accounts Payable 1 749 Accounts Payable 1 749

Purchases Rtns & Allows. 1 590 Inventory 1 590
GST Receivable 159 GST Receivable 159

3. Accounts Payable 28 160 Accounts Payable 28 160

Discount Received 512.00 Discount Received 512.00
GST Receivable 51.20 GST Receivable 51.20
Cash at Bank 27 596.80 Cash at Bank 27 596.80

4. Cash 23 000 Cash 23 000

Accounts Receivable 31 802 Accounts Receivable 31 802
Sales 49 820 Sales 49 820
GST Payable 4 982 GST Payable 4 982

Cost of Sales 24 900

Inventory 24 900

5. Sales Returns & Allowances 2 020 Sales Rtns & Allows 2 020
GST Payable 202 GST Payable 202
Accounts Receivable 2 222 Accounts Receivable 2 222

Inventory 1 010
Cost of Sales 1 010

C.
Physical count at period end $30 000 Inventory balance $30000
Perpetual System
No entry required under periodic system. $32 570 (balance) + $27 190 (purchase) – $1 590
Inventory loss included in calculation of Cost of Sales. (return) – $24 900 (sale) + $1 010 (sale return) = $34
280

Inventory Shortage 4 280

Expense
Inventory 4 280
Inventory loss $43 280 – $30 000 =
$4280

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Solutions Manual to accompany Financial Accounting 9e by Hoggett et al

D.
The perpetual inventory system is the only system which can identify inventory discrepancies.
This system maintains an accurate record of how many inventory units should be on hand at any
one time. The system can then identify any discrepancy between recorded inventory balances and
the stocktake or physical count of inventory numbers.
In this case the inventory shortage amount of $4280 is significant and the owner of the business
needs to investigate the cause. Is it theft? Is the inventory being discarded because it has
perished? Is it a combination of factors? What can be done about it?

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 Chapter 6: Accounting for retailing

Problem 6.9 Worksheet and completion of accounting cycle

— perpetual inventory system

A trial balance for Flemington Fashions Pty Ltd is shown below.

FLEMINGTON FASHIONS PTY LTD

Unadjusted Trial Balance
as at 30 June 2017
Account Debit Credit
Cash at bank $ 42 245
Accounts receivable 45 175
Inventory 59 360
Supplies 825
GST receivable 1 210
Store equipment 94 630
Accumulated depreciation – store equipment $ 20 265
Accounts payable 9 580
Loan payable 26 620
GST payable 2 420
Share capital 90 890
Retained earnings 21 470
Sales 302 520
Sales returns and allowances 2 740
Discount received 2 590
Cost of sales 176 280
Freight inwards 2 910
Discount allowed 1 200
Sales salaries expense 49 780
$ 476 355 $ 476 355

Required
A. Prepare a worksheet for Flemington Fashions Pty Ltd. Use the following information to make
adjusting entries:
1. Supplies on hand at 30 June, $260.
2. Depreciation on the store equipment, $8385.
3. Interest accrued on the loan payable, $1980.
4. Income tax expense and payable for the year, $19 600.
B. Prepare an income statement, a statement of changes in equity and a balance sheet for the year
ended 30 June 2017.
C. Prepare closing entries.

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Solutions Manual to accompany Financial Accounting 9e by Hoggett et al

A.
FLEMINGTON FASHIONS PTY LTD
Worksheet for the year ended 30 June 2017
Unadjusted trial Adjustments Adjusted trial Income Statement Balance Sheet
balance balance
Account title Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash at Bank 42 245 42 245 42 245
Accounts Receivable 45 175 45 175 45 175
Inventory 59 360 59 360 59 360
Supplies 825 (1) 565 260 260
GST Receivable 1 210 1 210 1 210
Store Equipment 94 630 94 630 94 630
Acc. Depr. Store Equip. 20 265 (2) 8 385 28 650 28 650
Accounts Payable 9 580 9 580 9 580
Loan Payable 26 620 26 620 26 620
GST Payable 2 420 2 420 2 420
Share Capital 90 890 90 890 90 890
Retained Earnings 21 470 21 470 21 470
Sales 302 520 302 520 302 520
Sales Returns & Allowances 2 740 2 740 2 740
Discount Received 2 590 2 590 2 590
Cost of Sales 176 280 176 280 176 280
Freight Inwards 2 910 2 910 2 910
Discount Allowed 1 200 1 200 1 200
Sales Salaries Expense 49 780 49 780 49 780
476 355 476 355
Supplies Expense (1) 565 565 565
Depr. Exp. – Store Equip. (2) 8 385 8 385 8 385
Interest Payable (3) 1 980 1 980 1 980
Income Tax Expense (4) 19 600 19 600 19 600
Current Tax Liability (4) 19 600 19 600 19 600
Interest Expense (3) 1 980 1 980 1 980
30 530 30 530 506 320 506 320 263 440 305 110 242 880 201 210
Profit 41 670 41 670
305 110 305 110 242 880 242 880

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 Chapter 6: Accounting for retailing

B.
FLEMINGTON FASHIONS PTY LTD
Income Statement
for the year ended 30 June 2017
INCOME
Sales Revenue $302 520
Less: Sales returns and allowances $2 740
Discount allowed 1 200 3 940
NET SALES REVENUE 298 580
Cost of sales 176 280
Add: Freight inwards 2 910
Less: Discount received (2 590)
Total cost of sales 176 600
GROSS PROFIT 121 980
EXPENSES:
Selling and distribution expenses:
Sales salaries expense $49 780
Depreciation expense – store equipment 8 385
Supplies expense 565 58 730
Finance and other expenses:
Interest expense 1 980
60 710
Profit before tax 61 270
Less: Income tax expense 19 600
PROFIT $41 670

FLEMINGTON FASHIONS PTY LTD

Statement of Changes in Equity
for the year ended 30 June 2017
Retained earnings – 1 July 2016 $21 470
Profit for the year 41 670

Retained earnings – 30 June 2017 $63 140

Share Capital (unchanged) 90 890

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Solutions Manual to accompany Financial Accounting 9e by Hoggett et al

FLEMINGTON FASHIONS PTY LTD

Balance Sheet
as at 30 June 2017
CURRENT ASSETS:
Cash at bank $42 245
Accounts receivable 45 175
Inventory 59 360
Supplies 260 $147 040
NON-CURRENT ASSETS:
Store equipment 94 630
Less: accumulated depreciation (28 650)
65 980
TOTAL ASSETS 213 020
CURRENT LIABILITIES:
Accounts payable 9 580
Interest payable 1 980
Current tax liability 19 600
GST Payable 1 210 32 370
NON-CURRENT LIABILITIES
Loan payable 26 620
TOTAL LIABILITIES 58 990
NET ASSETS $154 030
EQUITY
Share capital 90 890
Retained earnings 63 140
TOTAL EQUITY $154 030

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C. Closing entries

Profit or Loss Summary 263 440

Sales Returns & Allowances 2 740
Cost of Sales 176 280
Freight Inwards 2 910
Sales Salaries Expense 49 780
Depreciation Expense – Store Equipment 8 385
Supplies Expense 565
Interest Expense 1 980
Income Tax Expense 19 600
Discount Allowed 1 200
Close debit accounts

Sales 302 520

Discount Received 2 590
Profit or Loss Summary 305 110
Close credit accounts.

Profit or Loss Summary 41 670

Retained Earnings 41 670
Transfer profit to retained earnings.

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Solutions Manual to accompany Financial Accounting 9e by Hoggett et al

© John Wiley & Sons Australia, Ltd 2015 6.8