AC1220 ACCOUNTING I Lab 3.2 AC1220 Lab 3.2 Introduction As a merchandising operation, Jake’s Computer Sales and Repair must properly account for inventory. The business purchases and sells inventory as part of its ordinary operations, and so Jake must select an appropriate inventory costing method. Several costing methods are acceptable under Generally Accepted Accounting Principles (GAAP); Jake has narrowed down the choices to two methods— first-in, first-out (FIFO) and last-in, first-out (LIFO). In analyzing the effect of each of these methods, Jake applies the FIFO method and the LIFO method, in turn, to the inventory purchase and sale transactions that occurred during the month of May, 20x1. The inventory transactions are as follows: a. May 1, 20x1. The business reports a beginning inventory balance of $13,744. b. May 3, 20x1. Sold 55 units of inventory to customers for $200 each. c. May 3, 20x1. Purchased 70 A-line tablet computers at a cost of $190 per unit. d. May 8, 20x1. Sold 45 units to customers at $200 each. e. May 25, 20x1. Purchased 20 units at a price of $194. f. May 27, 20x1. Sold 58 units at $200 each. Refer to these transactions as you work through the following requirements. Requirement 1 [60 Minutes] a. Complete the following perpetual inventory record for the month of May 20x1, using the FIFOmethod. Purchases Cost of Goods Sold Inventory Available for Sale Date Quantity Unit Cost Total Quantity Unit Cost FIFO Total Quantity Unit Cost Total May 1 79 $174 $13,744 3 3 8 25 27 Total b. Make the appropriate journal entries for the transactions given earlier. Assume that all transactions were for cash. Annotations are not necessary. 5/3/x1 5/3/x1 5/8/x1 5/25/x1 5/27/x1 c. Now complete the perpetual inventory record for the month of May 20x1, using the LIFO method. Use the inventory transactions described earlier. Purchases Cost of Goods Sold Inventory Available for Sale Date Quantity Unit Cost Total Quantity Unit Cost LIFO Total Quantity Unit Cost Total May 1 79 $174 $13,744 3 3 8 25 27 Total d. Refer to the perpetual inventory records that you prepared in Requirements a and c above. Jake would like to maximize reported gross income by selecting an inventory-costing method that yields a lower cost of goods sold. Will Jake select the FIFO method or the LIFO method to account for inventory? e. Assume that inventory originally costing the business $35,000 is damaged and has an estimated market value of around $7,000. Jake is unsure of how to report this inventory on the balance sheet. Explain how Jake should report the inventory in accordance with GAAP. Refer to at least one specific accounting rule or principle in your explanation. 4 AC1220 ACCOUNTING I Lab .

1. AC1220 ACCOUNTING I
Lab 3.2
AC1220 Lab 3.2
Introduction
As a merchandising operation, Jake’s Computer Sales and
Repair must properly account for inventory. The business
purchases and sells inventory as part of its ordinary operations,
and so Jake must select an appropriate inventory costing
method. Several costing methods are acceptable under Generally
Accepted Accounting Principles (GAAP); Jake has narrowed
down the choices to two methods— first-in, first-out (FIFO) and
last-in, first-out (LIFO).
In analyzing the effect of each of these methods, Jake applies
the FIFO method and the LIFO method, in turn, to the inventory
purchase and sale transactions that occurred during the month of
May, 20x1.
The inventory transactions are as follows:

2. a. May 1, 20x1. The business reports a beginning inventory
balance of $13,744.
b. May 3, 20x1. Sold 55 units of inventory to customers for
$200 each.
c. May 3, 20x1. Purchased 70 A-line tablet computers at a cost
of $190 per unit.
d. May 8, 20x1. Sold 45 units to customers at $200 each.
e. May 25, 20x1. Purchased 20 units at a price of $194.
f. May 27, 20x1. Sold 58 units at $200 each.
Refer to these transactions as you work through the following
requirements.
Requirement 1
[60 Minutes]
a. Complete the following perpetual inventory record for the
month of May 20x1, using the FIFOmethod.

3. Purchases
Cost of Goods Sold
Inventory Available for Sale
Date
Quantity
Unit Cost
Total
Quantity
Unit Cost
FIFO Total
Quantity
Unit Cost
Total
May 1
79
$174
$13,744
3
3

4. 8
25
27

5. Total
b. Make the appropriate journal entries for the transactions
given earlier. Assume that all transactions were for cash.
Annotations are not necessary.
5/3/x1

6. 5/3/x1
5/8/x1

7. 5/25/x1
5/27/x1
c. Now complete the perpetual inventory record for the month
of May 20x1, using the LIFO method. Use the inventory

8. transactions described earlier.
Purchases
Cost of Goods Sold
Inventory Available for Sale
Date
Quantity
Unit Cost
Total
Quantity
Unit Cost
LIFO Total
Quantity
Unit Cost
Total
May 1
79
$174
$13,744
3

9. 3
8
25
27

10. Total
d. Refer to the perpetual inventory records that you prepared in
Requirements a and c above. Jake would like to maximize
reported gross income by selecting an inventory-costing method
that yields a lower cost of goods sold. Will Jake select the
FIFO method or the LIFO method to account for inventory?
e. Assume that inventory originally costing the business
$35,000 is damaged and has an estimated market value of
around $7,000. Jake is unsure of how to report this inventory
on the balance sheet. Explain how Jake should report the
inventory in accordance with GAAP. Refer to at least one
specific accounting rule or principle in your explanation.
4

11. AC1220 ACCOUNTING I
Lab 3.1
AC1220 Lab 3.1
Introduction
In each of the first three months of operation, Jake’s Computer
Repair Service generates a small profit. Jones decides to sell
computers in addition to providing repair services and renames
the proprietorship Jake’s Computer Sales and Repair to reflect
this change. On April 1, 20x1, Jones enters into a purchase
agreement with a computer equipment supplier and places an
order for A-line tablet computers, a promising and affordable
new product that the business will offer to the public.
The following transactions occur during April 20x1:
a. April 2, 20x1. Jake deposits an additional $35,000 into the
business bank account in exchange for capital.
b. April 8, 20x1. The inventory shipment arrives at Jake’s
Computer Sales and Repair, and the invoice totals $28,000. The

12. total includes shipping costs amounting to $200. Jake pays for
the shipping costs upon delivery of the inventory. Shipping
terms are 2/10 net 30.
c. April 15, 20x1. Inventory costing $18,000 is sold to
customers for $20,700 (cash).
d. April 16, 20x1. Jake’s Computer Sales and Repair makes cash
payment in full settlement of inventory purchase on April 8; see
transaction b above—take credit terms into account.
e. April 18, 20x1. Another shipment of inventory arrives at
Jake’s Computer Sales and Repair, accompanied by the
following invoice:
PC Supplier, Inc.
5555 N Drive
Ganesville, ID
INVOICE NO.:109
April 18, 20x1
Ship to: Jake’s Computer Repair Service
7101 Summer Ln, Wembly, KA
Terms: 2/10 net 30
Quantity
Item Description
Unit Price

13. Total
150
A-line computer
$205.00
$30,750
TOTAL
$30,750
f. April 19, 20x1. Cash sales of inventory, $30,475 (cost:
$26,500).
g. April 20, 20x1. Sold inventory to customer on account
$10,810 (cost: $9,400). Credit terms on sales are: 3/15 net 30.
h. April 25, 20x1. Sales returns amounted to $1,265 (cost:
$1,100). Refunded returns with cash.
i. April 25, 20x1. Customer makes payment $5,000 on account
(see credit terms, April 20).
j. April 30, 20x1. Selling expenses amount to $1,980, and
general expenses total an additional $1,560 (cash).
k. April 30, 20x1. Purchased store furniture, $31,000 (cash).
l. April 30, 20x1. Jake makes a cash withdrawal of $1,500.
m. Service revenues total $2,400 for April 20x1 (all cash).

14. Requirement 1
Jake’s Computer Sales and Repair uses a perpetual inventory
system. Journal entries have been made for transactions a, b,
and c.
Journalize the remaining inventory transactions for April 20x1
in the space provided below:
DATE
REF
DEBIT
CREDIT
April 2
Cash
a
$35,000
Capital, Jones
a
$35,000
To record capital contribution

15. 8
Inventory
b
$28,000
Cash
b
$200
Accounts Payable
b
$27,800
To record purchase of inventory
15
Cash
c
$20,700
Cost of Goods Sold
c
$18,000

16. Sales Revenue
c
$20,700
Inventory
c
$18,000
To record cash sale
16
d
d
d

17. 18
e
e
19
f

18. f
f
f
DATE
REF
DEBIT
CREDIT
g

19. g
g
g
25
h
h

20. h
h
25
i
i
i

21. 30
j
j
j
30
k

22. k
30
l
l

23. 30
m
m
Requirement 2
Jake prepares the following trial balance as of April 30, 20x1:
Account
Balance
Debit
Credit
Cash
$40,640
Accounts Receivable
$6,520
Supplies
$100

24. Inventory
$5,390
Prepaid Advertising
$800
Furniture
$31,000
Equipment
$6,200
Accounts Payable
$32,290
Capital, Jones
$43,010
Withdrawals, Jones
$1,500
Interest Payable
$120
Note Payable
$10,000
Sales Revenue
$64,485
Sales Returns & Allowances
$1,265
Sales Discounts
$150

25. Cost of Goods Sold
$52,800
Selling Expenses
$1,980
General Expenses
$1,560
Total
$149,905
$149,905
a. Prepare a Multistep Income Statement for Jake’s Computer
Sales and Repair for the month ended April 30, 20x1. Fill in the
shaded cells in the following template, using the appropriate
revenue and expense amounts obtained from the trial balance
provided before:
Jake’s Computer Sales and Repair
INCOME STATEMENT
For the Month Ended April 30, 20x1
Sales Revenue
Less:
Net Sales Revenue

26. Gross Profit
Less:
Operating Income
Net Income
b. Compute the gross profit percentage for Jake’s Computer
Sales and Repair for the month ended April 30, 20x1, using the
appropriate amounts from the income statement prepared above.
The gross profit percentages for the main competitors of Jake’s
Computer Sales and Repair range from 0.05 to around 0.09. On
the basis of the gross profit percentage you compute, comment
briefly on the profitability of Jake’s Computer Sales and Repair
in relation to its competitors.

27. c. Compute the capital balance at Jake’s Computer Sales and
Repair as of April 30, 20x1, using data provided in the trial
balance and the appropriate items from the income statement
prepared earlier. Hint: recall the computation of ending capital
in the statement of owner’s equity.
6