Reference no: EM133087346

Question - Sophie and Aaron are business partners of Mercury Store, a GST-registered business located in Sydney. The business uses a perpetual inventory system. As part of the internal control system, Sophie keeps the inventory ledger account while Aaron does the physical stock take at the end of their first year of business on 31 July 2021. They were confused why there was a difference between the closing inventory ledger balance of $257,000 and the physical inventory count of $335,000.

They asked you to review the business records that revealed the following transactions:

i. Aaron included in the physical count goods on consignment from a wholesaler valued at $50,050 inclusive GST because they were at the warehouse of Mercury Store on 31 July 2021 but Sophie did not record this in the inventory ledger.

ii. A Brisbane supplier shipped on DDP terms goods worth $20,350 inclusive GST on 28 July 2021. They are expected to reach Mercury Store on 5 August 2021. Aaron included the goods in transit in the physical count and Sophie did not record the purchase as she had not received the supplier's original invoice.

iii. Goods valued at $20,000 net GST consigned to Mars Corporation 31 July 2021. Sophie recorded the inventory as sold in the ledger. Since the goods were at Mars Corporation's warehouse, Aaron also excluded the goods in the physical count.

iv. Sophie had also recorded an invoice of $21,780 inclusive GST to a customer in Adelaide for goods shipped on ExW terms on 26 July 2021 and expected to reach the customer on 1 August 2021. The goods worth $14,000 net GST was recorded by Sophie as sold but Aaron included the goods in transit in the physical count.

Required -

a. Calculate Mercury Store's correct ending inventory at 31 July 2021 by reconciling its inventory ledger with the physical count.

b. Prepare the general journal to correct errors in the inventory ledger recording, where necessary. Provide a narration to explain each journal entry.