Financial Accounting Principles

Assessment 2: Adjusting Entries, Inventory, and Cost of Goods Sold

Use this worksheet to complete the following two exercises for Assessment 2. Refer to the instructions in the course for submitting your assessment.

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Exercise 2-1

For this exercise, use the following fiscal year-end unadjusted trial balance for the Bigelow Company.

Note: Rent and salary expenses are divided equally between general/administrative and selling activities. Bigelow uses a perpetual inventory system.


Unadjusted Trial Balance

April 30, 2012 (Fiscal year-end)

  Debit Credit
Cash $2,150  
Merchandise inventory 12,100  
Store supplies 4,600  
Prepaid insurance 2,100  
Store equipment 42,350  
Accumulated depreciation—Store equipment   $12,000
Accounts payable   8,700
Common stock   4,500
Retained earnings   25,400
Dividends 1,800  
Sales   108,500
Sales discounts 950  
Sales returns and allowances 1,750  
Cost of goods sold 36,300  
Depreciation expense—Store equipment 0  
Salaries expense 32,500  
Insurance expense 0  
Rent expense 13,800  
Store supplies expense 0  
Advertising expense 8,700 _______
Totals $159,100 $159,100

Prepare adjusting journal entries for the following:

$1,700 of store supplies remaining at the end of the fiscal year.

$1,800 of expired insurance for the fiscal year (administrative expense).

$1,250 depreciation expense on store equipment for the fiscal year (selling expense).

$11,200 of merchandise inventory remaining at the end of the fiscal year (based on a physical count to estimate shrinkage).

Adjustment (a):

Supply Expense 2900  
Supplies   2900


Adjustment (b):

Insurance Expense 1800  
Prepaid Insurance   1800


Adjustment (c):

Depreication Equipment 1250  
Account Depreciation   1250


Adjustment (d):

COG 900  
Inventory   900



Prepare a fiscal year 2012 multiple-step income statement. For distinguished performance, prepare both multiple- and single-step income statements.


Income Statement

For Year Ended April 30, 2011

[Create the 2011 multiple-step income statement here.]

Bigelow Company
Multistep Income Statement
For Year Ended April 30, 2011
Sales Revenue $108,500  
Less: Sales Return & Allowance $2,700  
Less: COG $36,300  
Gross Profit   $69,500
Less: Selling & Admin Expenses   ($55,000)
Net Income   $14,500


Prepare a fiscal year 2012 single-step income statement.


Income Statement

For Year Ended April 30, 2011

[Create the 2011 single-step income statement here.]

Bigelow Company
Single Step Income Statement
Year end April 30, 2011
Sales Revenue $108,500  
Less: Sales Returns ($2,700)  
Total Revenue   $105,800
Advertising Expense $8,700  
COG $36,300  
Rent Expense $13,800  
Salary & Wages $32,500  
Total Expenses   $91,300
Net Income   $14,500


Compute the following ratios as of April 30, 2012.

Current ratio.

Current Asset 20,950 2.41
Current Liability 8,700  


Acid test ratio.

Current Asset Inventory 8,850 1.02
Current Liability 8,700  



For distinguished performance, compute the gross margin ratio.



Gross Margin Ratio = Gross Profit = 69, 500 which is 65.69%

Net Sales 105,800

Exercise 2-2

The following A. B. Murphy Company data show purchase and sales transactions for the month of April. A. B. Murphy uses a perpetual inventory system.

Date Activities Units Purchased (at cost) Units Sold (at retail)
Apr 1 Beginning inventory 065 units @ $40/unit  
Apr 8 Purchase 225 units @ $45/unit  
Apr 12 Sales   235 units @ 75/unit
Apr 19 Purchase 050 units @ $50/unit  
Apr 23 Purchase 125 units @ $55/unit 0
Apr 27 Sales ________ 95 units @ 80/unit
  Totals 465 units 330 units

Compute the following:

Cost of (1) goods available for sale and (2) number of units for sale.


Number of units in ending inventory.



Cost assigned to ending inventory, using any three of the following four methods. Compute costs using all four methods for distinguished performance. Round per unit costs to three decimal places and inventory balances to the nearest dollar.



Weighted average.

Specific identification (see note below).

FIFO Perpetual
Date Goods Purchased Cost of Goods Sold Inventory Balance
Apr 1

Apr 8

Apr 19

Apr 23

Apr 27


LIFO Perpetual
Date Goods Purchased Cost of Goods Sold Inventory Balance

Weighted Average Perpetual
Date Goods Purchased Cost of Goods Sold Inventory Balance


Specific Identification

Note: The April 12 sale comprised 55 units from beginning inventory and 180 units from the April 8 purchase. The April 27 sale comprised 30 units from the April 19 purchase and 65 units from the April 23 purchase.

Date Goods Purchased Cost of Goods Sold Inventory Balance


Gross profit, using FIFO, LIFO, weighted average, and specific identification.





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