Comprehensive Problem for Chapters 5 and 6
The Davis Lamp Company (DLC) is a wholesale company that purchases lamps from the
manufacturer and resells them to retail stores. The company has three inventory items: desk
lamps, table lamps, and floor lamps. DLC uses a perpetual inventory system, FIFO method. DCL
owns land with a building, which is separated into two parts: office space and warehouse space.
All expenses associated with the office are categorized as Administrative Expenses. All expenses
associated with the warehouse, which is used for the shipping and receiving functions of the
company, are categorized as Selling Expenses. In addition to the land and building, DLC also
owns office furniture and equipment and warehouse fixtures. The company uses one
accumulated depreciation account for all the depreciable assets.
The trial balance for DLC as of September 30, 2018 follows:
Merchandise Inventory as of September 30 consists of the following lamps:
Item Quantity Unit Cost Total
Cost
Desk Lamp
Table Lamp
Floor Lamp
Total
2,500
3,000
2,000
$ 8
18
26
$ 20,000
54,000
52,000
$ 126,000
During the fourth quarter of 2018, DLC completed the following transactions:
Oct. 1 Purchased lamps on account from Blue Ridge Lights, terms n/30, FOB
destination:
5,000 desk lamps at $9 each
7,500 table lamps at $19 each
2,500 floor lamps at $25 each
12 Sold lamps on account to Atlas Home Furnishings, terms 2/10, n/30:
4,000 table lamps at $45 each
15 Sold lamps on account to Hiawassee Office Supply, terms 2/10, n/30:
1,000 desk lamps at $20 each
20 Received a check from Atlas Home Furnishings for full amount owed on
Oct. 12 sale.
23 Received a check from Hiawassee Office Supply for full amount owed on
Oct. 15 sale.
28 Sold lamps on account to Parkway Home Stores, terms 2/10, n/30:
3,500 table lamps at $45 each
1,500 floor lamps at $65 each
30 Paid amount due to Blue Ridge Lights from Oct. 1 purchase.
31 Paid salaries, $40,000 (75% selling, 25% administrative).
31 Paid utilities, $2,500 (60% selling, 40% administrative).
Nov.
1
Sold lamps on account to Hiawassee Office Supply, terms 2/10, n/30:
3,000 desk lamps at $20 each
5 Purchased lamps on account from Blue Ridge Lights, terms n/30, FOB
destination:
5,000 desk lamps at $10 each
10,000 table lamps at $21 each
5,000 floor lamps at $27 each
5 Received a check from Parkway Home Stores for full amount owed on Oct.
28 sale.
8 Received a check from Hiawassee Office Supply for full amount owed on
Nov. 1 sale.
10 Purchased and paid for supplies: $325 for the office; $675 for the warehouse.
15 Sold lamps on account to Anderson Office Supply, n/30:
2,000 desk lamps at $20 each
18 Sold lamps on account to Go-Mart Discount Stores, terms 1/10, n/30:
2,000 table lamps at $45 each
2,000 floor lamps at $65 each
28 Received a check from Go-Mart Discount Stores for full amount owed on
Nov. 18 sale.
30 Paid salaries, $40,000 (75% selling, 25% administrative).
30 Paid utilities, $2,670 (60% selling, 40% administrative).
Dec. 5 Paid amount due to Blue Ridge Lights from Nov. 5 purchase.
15 Received a check from Anderson Office Supply for full amount owed on
Nov. 15 sale.
15 Paid dividends, $50,000.
27 Sold lamps on account to Atlas Home Furnishings, terms 2/10, n/30:
4,500 desk lamps at $20 each
5,000 table lamps at $45 each
31 Paid salaries, $40,000 (75% selling, 25% administrative).
31 Paid utilities, $3,200 (60% selling, 40% administrative).
Requirements
1. Open general ledger T-accounts and enter opening balances as of September 30, 2018.
2. Open inventory records for the three inventory items and enter opening balances as of
September 30, 2018. Complete the inventory records using the following transactions:
Oct. 1, 12, 15, 28; Nov. 1, 5, 15, 18, and Dec. 27.
3. Record the transactions in the general journal.
4. Post transactions to the general ledger.
5. Prepare adjusting entries for the year ended December 31, 2018, and post to the ledger:
a. Depreciation, $48,500 (75% selling, 25% administrative).
b. Supplies on hand: office, $200; and warehouse, $650.
c. A physical inventory account resulted in the following counts: desk lamps, 1,990; table
lamps, 5,995; and floor lamps, 6,000. Update the inventory records.
6. Prepare an adjusted trial balance.
7. Provide a summary for the month, in both units and dollars, of the change in inventory
for each item in the following format:
Does the sum of the ending balances in the inventory records match the balance in
Merchandise Inventory in the general ledger? If not, review the transactions to find your
error.
8. Prepare Davis Lamp Company’s multi-step income statement and statement of retained
earnings for the year ended December 31, 2018, and a classified balance sheet as of
December 31, 2018.
9. Calculate the following ratios for DLC as of December 31, 2018: gross profit
percentage, inventory turnover, and days’ sales in inventory.
10. Record and post the closing entries.
11. Prepare a post-closing trial balance.
SOLUTION
