230 Demonstrators

Assets

Inventories

Synopsis

Account 230 is established to record the inventory value of vehicle Demonstrators maintained to provide test rides for customers.

Debits

Credits

  1. The factory invoice amount, less holdback and other non-related items such as supplemental advertising funds, of new vehicles placed in demonstration and other temporary company service

  2. The Cost of New Vehicles placed into Demonstration inventory

  3. The Internal selling price of dealer-installed accessories and optional equipment and the labor and material required for installation

  4. The Destination, delivery and handling charges

 

  1. The replacement value of accessories, optional equipment and tires removed from units and placed in Account 242, Parts & Accessories (inventory) and Account 243, Tires (inventory) as applicable

  2. The amount of subsequent factory price reductions

  3. The cost of units taken out of service and transferred to new vehicle inventories prior to their sales as new vehicles

  4. The amount of factory credits applied to vehicles placed in temporary service

Example 1

Record the transfer of a new car into demonstrator inventory for $15,500.

Journal: General Journal

Entry:

 

Debit

Credit

Account 230

Inventory – Demonstrators

$15,500

 

Account 231

Inventory – New Cars

 

$15,500

Example 2

Record the sale of a CD changer for demonstrator unit for $335. The mechanical labor sale for CD changer installation is $85. The CD changer sale is $250.  The cost of internal labor is $25. The CD changer cost is $175.

Journal: Internal Sales

Entry:

 

Debit

Credit

Account 230

Inventory – Demonstrators

$335

 

Account 663

Cost of Sales – Internal Labor Mechanical

$25

 

Account 684

Cost of Sales – Parts – Accessories

$175

 

Account 242

Inventory – Parts & Accessories

 

$175

Account 247A

Inventory – Work in Process – Mechanical

 

$25

Account 463

Sales – Internal Labor Mechanical

 

$85

Account 484

Sales – Parts – Accessories

 

$250

Example 3

Record the $2000 CTA/CTP credit from the factory on vehicle in demonstrator inventory.

Journal:  Purchase

Entry:

 

Debit

Credit

Account 261

Factory Receivables

$2000

 

Account 230

Inventory – Demonstrators

 

$200

Comments

A debit balance represents the cost of new vehicles set aside for use as demonstrators and for other temporary company service.

Note:

A record of each unit in the vehicle inventories shown below should be made on a Vehicle Inventory Record at the time the unit is acquired.

Stock numbers should be assigned in numerical sequence to new, used and repossessed units acquired. A used unit accepted in trade on the sale of a new unit should be given the same stock number as the new unit sold, but followed by the letter A. A used unit accepted in trade on the sale of another used unit should be given the same stock number as the used unit sold, but followed by the letter B, etc.

Supporting month-end schedules should be prepared. These schedules should be in agreement with the general ledger accounts and compared to physical inventories of the following:

· Demonstrators

· New Cars

· New Trucks

· Other Automotive

Supporting month-end schedules should be prepared. These schedules should be in agreement with the general ledger accounts and compared to physical inventories of the following:

·        Used Cars

·        Used Trucks

LAST-IN, FIRST-OUT (LIFO) INVENTORY VALUATION

Dealers who have elected to utilize the LIFO method of reporting inventory values should establish separate general ledger accounts captioned LIFO Reserve for each inventory account affected by LIFO.

For example, the entries to establish the initial LIFO adjustment for new vehicles should be handled as follows:

 

New Cars

 

New Trucks

Actual inventory

$425,000

 

$175,000

LIFO inventory

$370,000

 

$140,000

LIFO adjustment

$55,000

 

$35,000

 

 

 

 

 

DEBIT

 

CREDIT

ENTRY: Acct. 952 LIFO Adjustment

$90,000

 

 

Acct. 231L, Inventory-New Cars-LIFO Reserve

 

 

$55,000

Acct. 237L, Inventory-New Trucks-LIFO Reserve

 

 

$35,000

 

Subsequent adjustments to each LIFO reserve account should be offset to Account 952, LIFO Adjustment.  LIFO adjustments must be recorded and displayed on Page 7, on the operating report.

 

The Total LIFO Reserve, Line 36, Page 7, will be transferred & displayed on Page 1, Line 35.