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.
A portion of the inventory from the above purchase was defective. Grindstone
Jul 10
returned 100 units to the supplier.
Jul 12
Jul 14
Jul 18 Sold 300 units to SouthShore on account at $60 per unit plus tax, terms 2/10, net 30.
The customer from Jul 12 returned 30 units that were not needed. Process the return,
including sales tax.
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. Jul 23 Sold 200 units for $60 each plus tax. Received cash. 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).
1000 Date $1,000
Purchases
Quantity Unit Cost Value Quantity Sales
Unit Cost Balance
Value Quantity Date Description DR 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
Federal Income Tax
State Income Tax
FICA Tax Payable
FUTA Payable
SUTA Payable
Date 25,000
2,500
1,250
1,913
150
1,350
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.
$640,000
Item
Appraised Value
Percent
Applied to Cost
Land
$120,000
Building
400,000
Equipment
280,000
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
Net Book Value at
Depreciation
Accumulated
Net Book Value at
Year
Beginning of Year
Expense
Depreciation to Date
End of Year
2017
2018
2019
2020
2021 of July, they had 50
FIFO for inventory ventory valuation. 100
300
60
30 350
27
200
60 2 Balance
Unit Cost Value CR alculated the
mployees in cash, and sed as an expansion
he cost of each asset mpany uses the
the equipment is not
depreciation in the Net Book Value at
End of Year

 

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