Stevens Ltd is the leading retailer of Gym equipment. The following information occurred during May 2020. Stevens Ltd had an opening inventory balance of $8,400,000.May1 – Returned to the suppliers $80,000 of the opening inventory and received cash.12 – Purchased additional inventory on credit from the supplier for $12,000,000.18 – Sold inventory for $6,000,000 cash (Cost price to Stevens Ltd $2,400,000).19 – Paid the suppliers the account from 12 May.31 – The closing stocktake at year-end revealed an inventory balance of $17,800,000.[Fill in the blank] Part 1A Record the above information for the month of May 2020 in the general journal using the perpetual inventory method. Narrations are not required. Ignore GST. Journal Template: [table] Date | Account Name | Dr ($) | Cr ($) - | - | - | - - | - | - | - - | - | - | - - | - | - | - - | - | - | - - | - | - | - - | - | - | - - | - | - | - - | - | - | - [/table][Fill in the blank] Part 1B Present the Income Statement extract for Stevens Ltd using the periodic inventory method for the month ended 31 May 2020.[Fill in the blank] Part 1C Briefly explain two advantages of the perpetual inventory method for Stevens Ltd.[Fill in the blank]

View Explanation

Verified Answer

Please login to view

Step-by-Step Analysis

The task presents a May 2020 scenario for Stevens Ltd and asks for journal entries under the perpetual inventory method, a periodic income statement extract, and advantages of the perpetual method. The provided solution attempts to fill in Part 1A, Part 1B, and Part 1C. Below is a detailed, item-by-item analysis of the components, explaining the rationale and what each step represents, along with notes on potential alternatives and common errors. Part 1A — General Journal entries under perpetual inventory method - May 1: Return to supplier of opening inventory 80,000 cash. • This entry reduces the opening inventory and records a liability/cash outflow. In perpetual inventory, returns to suppliers are recorded by crediting Inventory (to reduce the asset on hand) and debiting Accounts Payable (or Cash if paid immediately). The provided entry shows Dr 80,000 to Accounts Payable and Cr 80,000 to Inventory, which aligns with reducing the balance payable and reducing inventory value. • Why this is plausible: It reflects a reduction in both inventory on hand and the amount owed to suppliers due to the return. Cash is not involved if the return was settled by reducing payable, but the prompt says received cash; if cash was received, the appropriate change would be Dr Cash and Cr Inventory or Dr Cash and Cr Accounts Payable depending on how the return settled. The given entry assumes the return settled the liability without cash movement, which may conflict......Login to view full explanation

Log in for full answers

We've collected over 50,000 authentic exam questions and detailed explanations from around the globe. Log in now and get instant access to the answers!