Carmen s Household Appliances carries an inventory of clocks and other household

items. The business began the second quarter of 2013 with 15 clocks (Lomani Quartz Brand)

at a total cost of $36,000. The following transactions, relating to the clocks (Lomani Quartz

Brand), took place during the quarter:

April 5 Purchased 30 clocks at a cost of $2,490 each.

April 30 The sales for April were 18 clocks which yielded total sales revenue of


May 1 A new batch of 15 clocks was purchased on account at a cost of $2,250 each.

These units attracted an additional shipping cost of $350 on each clock. It is

customary for Carmen s Household Appliances to include freight-in as part

of the cost of the units in their inventory record.

May 16 Upon inspection, five (5) of the clocks purchased on May 1 were found to be

badly soiled and were returned to the supplier.

May 30 During the month 20 clocks were sold at a price of $5,000 each.

June 2 Ariana Stone, a customer to whom 5 clocks were sold at the close of business

on May 30th, returned 2 of the clocks, as she had purchased an incorrect


June 12 To meet the increased demand for the commodity, a further 14 clocks were

purchased at a cost of $3,000 each, however a trade discount of 5% was

received on each clock.

June 30 22 clocks were sold during June at a unit selling price of $5,300.

June 30 A physical count of inventory was carried out at the close of business, which

revealed that there were only 8 clocks on hand.

All purchases were received on the dates stated and Carmen s Household Appliances uses the

FIFO method to account for inventory.


i) Prepare a perpetual inventory ledger card for clocks (Lomani Quartz Brand),

clearly showing the value of ending inventory at June 30th, 2013, and the total amount

to be assigned to cost of goods sold for the period. (20 marks)

ii) Given that marketing & selling and administrative costs for the quarter were $16,550

and $23,710 respectively, prepare an income statement for Carmen s Household

Appliances for the period, to determine the profit earned on the Lomani Quartz

clocks. (6 marks)

iii) You are told that 8 of the clocks sold on May 30th, 2013 were on account. State the

journal entries necessary to record the transactions on May 1

st and May 30th , assuming

the company uses a:- Periodic inventory system

– Perpetual inventory system (8 marks)

iv) Assuming that the business used the average cost method, what would be the value of

the units sold on April 30? (Show all workings to explain your answer) (3 marks)

v) Briefly explain the impact of inflation on ending inventory, cost of goods sold and gross

profit under both the FIFO and LIFO methods of inventory valuation. (3 marks)