Question

Bick Company purchased 6,500 bushels of ungraded apricots for $13,500. The apricots were sorted as follows: grade 1, 2,500 bushels; grade 2, 1,750 bushels; and grade 3, 2,250 bushels. The current market prices for graded apricots follow: grade 1, $5 per bushel; grade 2, $3 per bushel; and grade 3, $1 per bushel. The company uses a perpetual inventory system.

Required:
Prepare the entry to record the purchase.

Answer 1

the entry to record the purchase is :

Debit : Purchases (6,500 bushels) $13,500

Credit : Cash $13,500

Step-by-step explanation:

In perpetual inventory system inventory valuation and calculation cost of sales are done on every transaction made.

It is important for this question to also remember that inventory according to IAS 2 are initially measured at the purchase price plus any other costs incurred in bringing the inventory in location and condition as intended for sale by managers.

Thus, the purchase made must be initially recognized at cost as follows :

Debit : Purchases (6,500 bushels) $13,500

Credit : Cash $13,500