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CASE #1: Sophia Wise Computer Sales is a merchandiser and purchases its products directly from manufacturers. In turn it sells those products to its various customers. One of its customers is Hillary Zabkar Electronics. The following transactions took place between Sophia Wise (seller) and its customer Hillary Zabkar Electronics during the month of December:Dec 1Sold merchandise to Hillary Zabkar on credit for $5000 terms 3/10 n/30. The items sold had a cost of $3500Dec 3Purchased merchandise from a manufacturer for cash $720.Dec 4Purchased merchandise from a manufacturer on credit for $2600 terms 1/20 n/30.Dec 5Issued a credit memorandum for $300 to its customer Hillary Zabkar Electronics who returned merchandise purchased Nov 29th. The returned items had a cost of $210Dec 11Received payment for merchandise sold Dec 1Dec 15Received a credit memorandum from a manufacturer for the return of faulty merchandise purchased on Dec 4 for $600.Dec 18Paid freight charges of $200 for merchandise ordered last month (FOB shipping point)Dec 23Paid for the merchandise purchased Dec 4 less the portion that was returnedDec 24Sold merchandise to Hillary Zabkar on credit for $7000 terms 2/10 n/30. The items had a cost of $4900Dec 31Received payment for merchandise sold on Dec 24Problem #1Assuming a perpetual inventory system prepare the required journal entries that Sophia Wise Computer Sales must make to record these transactions:Problem #2Assuming a periodic inventory system prepare the required journal entries that Sophia Wise Computer Sales must make to record these transactions:Problem #3Assuming a perpetual inventory system prepare the required journal entries that Hillary Zabkar Electronics must make to record these transactions:Problem #4Assuming a periodic inventory system prepare the required journal entries that Hillary Zabkar Electronics must make to record these transactions:CASE #2::Sarah Perreault Corp. sold 6400 units of its product at $45 per unit in year 2013 and incurred operating expenses of $6 per unit in selling them. It began the year with 600 units in inventory and the following transactions took place during the fiscal year:DATEACTIVITYUNITSPRICEJan 1Beginning inventory600$18 per unitFeb 20Purchase1500$19 per unitMay 16Purchase700$20 per unitOct 3Purchase400$21 per unitDec 11Purchase3300$22 per unitFeb 22Sale750$45 per unitMay 15Sale890$45 per unitSep 11Sale775$45 per unitDec 28Sale3985$45 per unitProblem #1Prepare comparative income statements similar to the ones found in your text at Exhibit 6.8 for the three inventory cost flow methods of FIFO LIFO and weighted average. The company uses a perpetual inventory system and its income tax rate is 30%.In calculating cost of sales be sure to demonstrate the flow of inventory during the year and prove your ending inventory amount by using the inventory cost formula (BI + Purchases = GA EI = CGS).Problem #2Discuss in 500 words or less how the financial results from using the three alternative methods would change if Sarah Perreault had been experiencing declining costs in its purchases of inventory?Problem #3What advantages and disadvantages are offered by using LIFO and FIFO? Assume the continuing trend of increasing costs.
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