Part 1
Grindstone Paving has the following information for one item they sell. At the beginning of July, they had 50 units with a cost of $25 each. Grindstone uses the perpetual inventory system and uses FIFO for inventory valuation. Grindstone charges 5% sales tax on all sales.
50 25 5
Prepare the following journal entries. Use the table below the transactions to calculate inventory valuation.
500 26
Date Transaction
Jul 8 Purchased 500 units at $26 each on account, terms 2/10, net 30.
Jul 10 A portion of the inventory from the above purchase was defective. Grindstone returned 100 units to the supplier. 100
Jul 12 Sold 300 units to SouthShore on account at $60 per unit plus tax, terms 2/10, net 30. 300
60
Jul 14 The customer from Jul 12 returned 30 units that were not needed. Process the return, including sales tax. 30
Jul 18 The customer from Jul 12 paid their amount owing and claimed their discount. Note the discount is not taken on the sales tax amount.
Jul 22 Purchased 350 units on account at $27 per unit with terms of 3/10, net 30. 350
27
Jul 23 Sold 200 units for $60 each plus tax. Received cash. 200
60
Jul 25 Took advantage of discount offered and paid up amount owing from the Jul 22 purchase.
Jul 31 Remitted the sales tax owing to the government.
Jul 31 Grindstone provides warranties on the products they sell. They estimate the warranty to be $2 for each item sold (less any returns). 2
1000 $1,000
Date Purchases Sales Balance
Quantity Unit Cost Value Quantity Unit Cost Value Quantity Unit Cost Value
Date Description DR CR
What is the value of ending inventory at the end of July?
Part 2
At the end of July, Grindstone prepares their payroll for the month. The accountant has calculated the following amounts for gross pay and deductions. Prepare the journal entries to pay the employees in cash, and record the employer contributions.
Gross Pay 25,000
Federal Income Tax 2,500
State Income Tax 1,250
FICA Tax Payable 1,913
FUTA Payable 150
SUTA Payable 1,350
Date Description DR CR
Part 3
On July 1, 2017, Grindstone made a lump sum purchase of capital assets which will be used as an expansion of their store . Assume the company paid for the assets with $640,000 cash. Calculate the cost of each asset and prepare the journal entry for the purchase.
$6,40,000
Item Appraised Value Percent Applied to Cost
Land $1,20,000
Building 4,00,000
Equipment 2,80,000
Date Description DR CR
The equipment purchased on July 1, 2017 has an estimated useful life of 4 years. The company uses the double-declining balance method to depreciate equipment. At the end of the useful life, the equipment is not expected to have any residual value. The company uses the half-year rule to account for depreciation in the year of purchase and the year of disposal. Prepare the depreciation table below.
4
Year Net Book Value at Beginning of Year Depreciation Expense Accumulated Depreciation to Date Net Book Value at End of Year
2017
2018
2019
2020
2021
