Physical Inventory
Racers ATVs sells many makes and models of all terrain vehicles. Racers uses a periodic inventory system. On January 1, Racers had a beginning inventory of AXVs costing $28,600. On January 14, Racers received a shipment of Model AXVs with a purchase price of $14,700 and transportation costs of $400. On May 19, Racers received a second shipment of AXVs with a purchase price of $16,900 and transportation costs of $450. On November 1, Racers received its before-Christmas shipment of AXVs with a purchase price of $27,800 and transportation costs of $750.
a. Make the necessary journal entries for January 14, May 19, and November 1 to show the purchase of the inventory.
b. Assume that a physical inventory count on December 31 showed an ending inventory of AXVs of $25,800. Determine cost of goods sold for the AXV model for the year.
c. If sales of AXVs were $96,700, what profit did Racers make on this model?
d. Racers is considering replacing its periodic inventory system with a perpetual one. Write a memo to Racers management giving the pros and cons of this switch.
