Massy Shoe Store Inventory Adjustments Summary

You have been provided with the following information for Massy Shoe Store (St Lucia) which accounts for its inventory using the periodic system. Its financial year ends September 30. All purchases and sales are made on account. § Physical count at beginning of September 30, 2024 valued inventory of shoes at $469,780. § Included in the physical count was shoes purchased for $20,840 on September 17 from Payless (SLU). The shoes were shipped f.o.b. destination point on September 30 and arrived October 7. The invoice was received and recorded appropriately. § Shoes purchased from Fabco (SVG) on September 25 for $17,080 and shipped f.o.b. destination were received on September 30 after inventory had been counted. The invoice was received and recorded appropriately. § On September 29, shoes were received from Genuine Leathers (Brazil) with an invoice price of $31,260. The shoes were shipped to Massy Shoe Store f.o.b. destination. The invoice, which had not yet arrived, had not been recorded on September 30. § Massy Shoe Store sold some chef crocs to Holiday Resorts (Antigua) on September 29, f.o.b. destination, these were shipped on September 30. The invoice was prepared and recorded as a sale on September 30 for $25,600. The shoes had a cost of $14,700 and Holiday Resorts received the shoes on October 6. § Shoes costing $92,000 were purchased and received from Telco (Dom) on September 30 accompanied by an invoice annotated ’40 % on consignment’. The invoice was received and recorded appropriately. § A box containing returned shoes (incorrect size) and labelled ‘Please Accept for Credit’ was placed in the front of the wharehouse on September 30 after the physical count was done. These shoes which cost $3,000 had been sold to a customer for $5,200. No entry had been made in the books to reflect the returns. 3 § Football shoes were sold to Trinidad and Tobago Football Association (TTFA) f.o.b. shipping point for $37,800 on September 30 (last transaction on the day). The cost of these shoes were $23,040. The shoes were shipped on October 1 and received by TTFA on October 4. Required: i) Compute the correct inventory balance for Massy Shoe Store (St Lucia) at the end of its trading day, September 30, 2024. (7 marks) ii) Prepare all necessary correcting journal entries to adjust inventory and related accounts to their proper amounts at September 30, 2024. Assume the books have not yet been closed.

To compute the correct inventory balance for Massy Shoe Store (St Lucia) at the end of its trading day on September 30, 2024, we need to consider the physical count of inventory and adjust it for the transactions that affect inventory.

i) Compute the Correct Inventory Balance

1. Physical Count of Inventory: $469,780

2. Adjustments for Purchases:

   • Payless (SLU): Shoes purchased for $20,840 shipped f.o.b. destination. Since they arrived after the count (October 7), they are not included in inventory.
   • Fabco (SVG): Shoes purchased for $17,080 shipped f.o.b. destination. They were received on September 30, so they are included in inventory.
   • Genuine Leathers (Brazil): Shoes with an invoice price of $31,260 shipped f.o.b. destination. Since they were not recorded and are f.o.b. destination, they are not included in inventory.
   • Telco (Dom): Shoes costing $92,000 were received on September 30 and recorded. However, they are on consignment (40% on consignment), so only 60% of the cost is included in inventory: [ 60% \times 92,000 = 55,200 ]
   • Returned Shoes: Shoes costing $3,000 were returned but not recorded. They should be deducted from inventory.

3. Adjustments for Sales:

   • Holiday Resorts (Antigua): Sold shoes for $25,600 with a cost of $14,700. Since they were shipped f.o.b. destination and received on October 6, they are not included in inventory.
   • TTFA: Sold shoes for $37,800 with a cost of $23,040. They were shipped f.o.b. shipping point on October 1, so they are not included in inventory.

Summary of Adjustments

• Initial Inventory: $469,780
• Add: Fabco (SVG) inventory: $17,080
• Add: Telco (Dom) inventory (60%): $55,200
• Subtract: Returned shoes: $3,000
• Total Adjustments: [ 469,780 + 17,080 + 55,200 - 3,000 = 539,060 ]

Correct Inventory Balance

The correct inventory balance for Massy Shoe Store at the end of September 30, 2024, is $539,060.

ii) Prepare Correcting Journal Entries

1. To record the inventory from Fabco (SVG):

   • No entry needed since it was already recorded.

2. To record the inventory from Genuine Leathers (Brazil):

   • No entry needed since it was not recorded and is not included in inventory.

3. To adjust the inventory for Telco (Dom):

   • Journal Entry:

     Inventory                     55,200
         Accounts Payable                     55,200
     

4. To adjust for the returned shoes:

   • Journal Entry:

     Inventory                      3,000
         Sales Returns and Allowances          3,000
     

5. To adjust for the sales of Holiday Resorts and TTFA:

   • No entries needed since they are not included in inventory.

Summary of Journal Entries

1. Inventory from Telco (Dom):

   Inventory                     55,200
       Accounts Payable                     55,200
   

2. Returned Shoes:

   Inventory                      3,000
       Sales Returns and Allowances          3,000
   

These entries will adjust the inventory and related accounts to their proper amounts at September 30, 2024.