1.
Using your accounting knowledge, find the missing amounts in the following income statements. (Amounts to be deducted should be indicated by a minus sign.)
|
|
| a | b | c | d | e |
| Sales | $62,000 | $43,500 | $46,000 | $79,000 | $25,600 |
| Cost of goods sold | | | | | |
| Merchandise inventory (beginning) | 8,000 | 17,050 | 7,500 | 8,000 | 4,560 |
| Total cost of merchandise purchases | 38,000 | 1,950 | 43,750 | 32,000 | 6,600 |
| Merchandise inventory (ending) | (11,950) | (3,000) | (9,000) | (6,600) | (4,160) |
| Cost of goods sold | 34,050 | 16,000 | 42,250 | 33,400 | 7,000 |
| Gross profit | 27,950 | 27,500 | 3,750 | 45,600 | 18,600 |
| Expenses | 10,000 | 10,650 | 12,150 | 3,600 | 6,000 |
| Net income (loss) | $17,950 | $16,850 | $(8,400) | $42,000 | $12,600 |
|
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2.
| Apr. 2 |
Purchased merchandise from Lyon Company under the following terms: $4,600 price, invoice dated April 2, credit terms of 2/15, n/60, and FOB shipping point.
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| 3 | Paid $300 for shipping charges on the April 2 purchase. |
| 4 | Returned to Lyon Company unacceptable merchandise that had an invoice price of $600. |
| 17 |
Sent a check to Lyon Company for the April 2 purchase, net of the discount and the returned merchandise.
|
| 18 |
Purchased merchandise from Frist Corp. under the following terms: $8,500 price, invoice dated April 18, credit terms of 2/10, n/30, and FOB destination.
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| 21 | After negotiations, received from Frist a $1,100 allowance on the April 18 purchase. |
| 28 | Sent check to Frist paying for the April 18 purchase, net of the discount and allowance. |
Prepare journal entries to record the above transactions for a retail store. Assume a perpetual inventory system.
| Date | General Journal | Debit | Credit |
| April 02 | Merchandise inventory | 4,600 | |
| Accounts payable—Lyon | | 4,600 |
| | | |
| April 03 | Merchandise inventory | 300 | |
| Cash | | 300 |
| | | |
| April 04 | Accounts payable—Lyon | 600 | |
| Merchandise inventory | | 600 |
| | | |
| April 17 | Accounts payable—Lyon | 4,000 | |
| Merchandise inventory | | 80 |
| Cash | | 3,920 |
| | | |
| April 18 | Merchandise inventory | 8,500 | |
| Accounts payable—Frist | | 8,500 |
| | | |
| April 21 | Accounts payable—Frist | 1,100 | |
| Merchandise inventory | | 1,100 |
| | | |
| April 28 | Accounts payable—Frist | 7,400 | |
| Merchandise inventory | | 148 |
| Cash | | 7,252 |
|
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3.
Allied Parts was organized on May 1, 2015, and made its first purchase of merchandise on May 3. The purchase was for 2,000 units at a price of $10 per unit. On May 5, Allied Parts sold 1,500 of the units for $14 per unit to Baker Co. Terms of the sale were 2/10, n/60.
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| a. |
On May 7, Baker returns 200 units because they did not fit the customer's needs. Allied Parts restores the units to its inventory.
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| b. |
On May 8, Baker discovers that 300 units are damaged but are still of some use and, therefore, keeps the units. Allied Parts sends Baker a credit memorandum for $600 to compensate for the damage.
|
| c. |
On May 15, Baker discovers that 100 units are the wrong color. Baker keeps 60 of these units because Allied Parts sends a $120 credit memorandum to compensate. Baker returns the remaining 40 units to Allied Parts. Allied Parts restores the 40 returned units to its inventory.
|
Prepare entries for Allied Parts to record the May 5 sale and each of the above separate transactions using a perpetual inventory system.
|
| Date | General Journal | Debit | Credit |
| May 05 | Accounts receivable | 21,000 | |
| Sales | | 21,000 |
| | | |
| May 05 | Cost of goods sold | 15,000 | |
| Merchandise inventory | | 15,000 |
| | | |
| May 07 | Sales returns and allowances | 2,800 | |
| Accounts receivable | | 2,800 |
| | | |
| May 07 | Merchandise inventory | 2,000 | |
| Cost of goods sold | | 2,000 |
| | | |
| May 08 | Sales returns and allowances | 600 | |
| Accounts receivable | | 600 |
| | | |
| May 15 | Sales returns and allowances | 680 | |
| Accounts receivable | | 680 |
| | | |
| May 15 | Merchandise inventory | 400 | |
| Cost of goods sold | | 400 |
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4.
The following list includes selected permanent accounts and all of the temporary accounts from the December 31, 2015, unadjusted trial balance of Emiko Co., a business owned by Kumi Emiko. Emiko Co. uses a perpetual inventory system.
|
| | Debit | | Credit |
| Merchandise inventory | $ | 30,000 | | |
| Prepaid selling expenses | | 5,600 | | |
| Dividends | | 33,000 | | |
| Sales | | | $ | 529,000 |
| Sales returns and allowances | | 17,500 | | |
| Sales discounts | | 5,000 | | |
| Cost of goods sold | | 212,000 | | |
| Sales salaries expense | | 48,000 | | |
| Utilities expense | | 15,000 | | |
| Selling expenses | | 36,000 | | |
| Administrative expenses | | 105,000 | | |
|
| Additional Information |
Accrued sales salaries amount to $1,700. Prepaid selling expenses of $3,000 have expired. A physical count of year-end merchandise inventory shows $28,450 of goods still available.
|
| (a) | Use the above account balances along with the additional information, prepare the adjusting entries. |
|
|
| Date | General Journal | Debit | Credit |
| Dec 31 | Sales salaries expense | 1,700 | |
| Salaries payable | | 1,700 |
| | | |
| Dec 31 | Selling expenses | 3,000 | |
| Prepaid selling expenses | | 3,000 |
| | | |
| Dec 31 | Cost of goods sold | 1,550 | |
| Merchandise inventory | | 1,550 |
| (b) | Use the above account balances along with the additional information, prepare the closing entries. |
| Date | General Journal | Debit | Credit |
| Dec 31 | Sales | 529,000 | |
| Income summary | | 529,000 |
| | | |
| Dec 31 | Income summary | 444,750 | |
| Sales returns and allowances | | 17,500 |
| Sales discounts | | 5,000 |
| Cost of goods sold | | 213,550 |
| Sales salaries expense | | 49,700 |
| Utilities expense | | 15,000 |
| Selling expenses | | 39,000 |
| Administrative expenses | | 105,000 |
| | | |
| Dec 31 | Income summary | 84,250 | |
| Retained earnings | | 84,250 |
| | | |
| Dec 31 | Retained earnings | 33,000 | |
| Dividends | | 33,000 |
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5.
| Case X | Case Y | Case Z |
| Cash | | $ | 2,000 | | $ | 110 | | $ | 1,000 |
| Short-term investments | | | 50 | | | 0 | | | 580 |
| Current receivables | | | 350 | | | 470 | | | 700 |
| Inventory | | | 2,600 | | | 2,420 | | | 4,230 |
| Prepaid expenses | | | 200 | | | 500 | | | 900 |
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|
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| Total current assets | | $ | 5,200 | | $ | 3,500 | | $ | 7,410 |
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|
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| Current liabilities | | $ | 2,000 | | $ | 1,000 | | $ | 3,800 |
Compute the current ratio and acid-test ratio for each of the above separate cases.
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|
| Current Ratio |
| Choose Numerator: | | Choose Denominator: | = | Current Ratio |
| Current assets | / | Current liabilities | = | Current ratio |
| Case X | $5,200 | / | $2,000 | = | 2.60 | to 1 |
| Case Y | $3,500 | / | $1,000 | = | 3.50 | to 1 |
| Case Z | $7,410 | / | $3,800 | = | 1.95 | to 1 |
| Acid-Test Ratio |
| Choose Numerator: | | Choose Denominator: | = | Acid-Test Ratio |
| Quick assets | / | Current liabilities | = | Acid-test ratio |
| Case X | $2,400 | / | $2,000 | = | 1.20 | to 1 |
| Case Y | $580 | / | $1,000 | = | 0.58 | to 1 |
| Case Z | $2,280 | / | $3,800 | = | 0.60 | to 1 |
|
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6.
| July | 1 |
Purchased merchandise from Boden Company for $6,000 under credit terms of 1/15, n/30, FOB shipping point, invoice dated July 1.
|
| 2 |
Sold merchandise to Creek Co. for $900 under credit terms of 2/10, n/60, FOB shipping point, invoice dated July 2. The merchandise had cost $500.
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| 3 |
Paid $125 cash for freight charges on the purchase of July 1.
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| 8 | Sold merchandise that had cost $1,300 for $1,700 cash. |
| 9 |
Purchased merchandise from Leight Co. for $2,200 under credit terms of 2/15, n/60, FOB destination, invoice dated July 9.
|
| 11 |
Received a $200 credit memorandum from Leight Co. for the return of part of the merchandise purchased on July 9.
|
| 12 |
Received the balance due from Creek Co. for the invoice dated July 2, net of the discount.
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| 16 |
Paid the balance due to Boden Company within the discount period.
|
| 19 |
Sold merchandise that cost $800 to Art Co. for $1,200 under credit terms of 2/15, n/60, FOB shipping point, invoice dated July 19.
|
| 21 |
Issued a $200 credit memorandum to Art Co. for an allowance on goods sold on July 19.
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| 24 |
Paid Leight Co. the balance due after deducting the discount.
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| 30 |
Received the balance due from Art Co. for the invoice dated July 19, net of discount.
|
| 31 |
Sold merchandise that cost $4,800 to Creek Co. for $7,000 under credit terms of 2/10, n/60, FOB shipping point, invoice dated July 31.
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Prepare journal entries to record the above merchandising transactions of Blink Company, which applies the perpetual inventory system.
|
| Date | General Journal | Debit | Credit |
| Jul 01 | Merchandise inventory | 6,000 | |
| Accounts payable—Boden | | 6,000 |
| | | |
| Jul 02 | Accounts receivable—Creek | 900 | |
| Sales | | 900 |
| | | |
| Jul 02 | Cost of goods sold | 500 | |
| Merchandise inventory | | 500 |
| | | |
| Jul 03 | Merchandise inventory | 125 | |
| Cash | | 125 |
| | | |
| Jul 08 | Cash | 1,700 | |
| Sales | | 1,700 |
| | | |
| Jul 08 | Cost of goods sold | 1,300 | |
| Merchandise inventory | | 1,300 |
| | | |
| Jul 09 | Merchandise inventory | 2,200 | |
| Accounts payable—Leight | | 2,200 |
| | | |
| Jul 11 | Accounts payable—Leight | 200 | |
| Merchandise inventory | | 200 |
| | | |
| Jul 12 | Cash | 882 | |
| Sales discounts | 18 | |
| Accounts receivable—Creek | | 900 |
| | | |
| Jul 16 | Accounts payable—Boden | 6,000 | |
| Merchandise inventory | | 60 |
| Cash | | 5,940 |
| | | |
| Jul 19 | Accounts receivable—Art | 1,200 | |
| Sales | | 1,200 |
| | | |
| Jul 19 | Cost of goods sold | 800 | |
| Merchandise inventory | | 800 |
| | | |
| Jul 21 | Sales returns and allowances | 200 | |
| Accounts receivable—Art | | 200 |
| | | |
| Jul 24 | Accounts payable—Leight | 2,000 | |
| Merchandise inventory | | 40 |
| Cash | | 1,960 |
| | | |
| Jul 30 | Cash | 980 | |
| Sales discounts | 20 | |
| Accounts receivable—Art | | 1,000 |
| | | |
| Jul 31 | Accounts receivable—Creek | 7,000 | |
| Sales | | 7,000 |
| | | |
| Jul 31 | Cost of goods sold | 4,800 | |
| Merchandise inventory | | 4,800 |
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Questions 7-10
[The following information applies to the questions displayed below.]
| Valley Company’s adjusted trial balance on August 31, 2015, its fiscal year-end, follows. |
| | | Debit | | | Credit | |
| Merchandise inventory | | $ | 41,000 | | | | |
| Other (noninventory) assets | | | 130,400 | | | | |
| Total liabilities | | | | | $ | 25,000 | |
| Common stock | | | | | | 10,000 | |
| Retained earnings | | | | | | 94,550 | |
| Dividends | | | 8,000 | | | | |
| Sales | | | | | | 225,600 | |
| Sales discounts | | | 2,250 | | | | |
| Sales returns and allowances | | | 12,000 | | | | |
| Cost of goods sold | | | 74,500 | | | | |
| Sales salaries expense | | | 32,000 | | | | |
| Rent expense—Selling space | | | 8,000 | | | | |
| Store supplies expense | | | 1,500 | | | | |
| Advertising expense | | | 13,000 | | | | |
| Office salaries expense | | | 28,500 | | | | |
| Rent expense—Office space | | | 3,600 | | | | |
| Office supplies expense | | | 400 | | | | |
| |
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| |
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| |
| Totals | | $ | 355,150 | | $ | 355,150 | |
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| |
|
On August 31, 2014, merchandise inventory was $25,400. Supplementary records of merchandising activities for the year ended August 31, 2015, reveal the following itemized costs.
|
| | |
| Invoice cost of merchandise purchases | $ | 92,000 |
| Purchase discounts received | | 2,000 |
| Purchase returns and allowances | | 4,500 |
| Costs of transportation-in | | 4,600 |
|
7.
| Required: |
| 1. | Compute the company’s net sales for the year.
|
8.
| 2. | Compute the company’s total cost of merchandise purchased for the year.
|
|
| Total cost of merchandise purchased | $90,100 |
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|
9.
| 3. |
Prepare a multiple-step income statement that includes separate categories for selling expenses and for general and administrative expenses.
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|
|
| VALLEY COMPANY |
| Income Statement |
| For Year Ended August 31, 2015 |
| Sales | | $225,600 |
| Less: Sales discounts | $2,250 | |
| Less: Sales returns and allowances | 12,000 | 14,250 |
| Net sales | | 211,350 |
| Cost of goods sold | | 74,500 |
| Gross profit | | 136,850 |
| Expense | | |
| Selling expenses | | |
| Sales salaries expense | 32,000 | |
| Rent expense—Selling space | 8,000 | |
| Store supplies expense | 1,500 | |
| Advertising expense | 13,000 | |
| | |
| | |
| Total selling expenses | | 54,500 |
| General and administrative expenses | | |
| Office salaries expense | 28,500 | |
| Rent expense—Office space | 3,600 | |
| Office supplies expense | 400 | |
| Total general and administrative expenses | | 32,500 |
| Total expenses | | 87,000 |
| Net income | | $49,850 |
|
10.
| 4. |
Prepare a single-step income statement that includes these expense categories: cost of goods sold, selling expenses, and general and administrative expenses.
|
|
| VALLEY COMPANY |
| Income Statement |
| For Year Ended August 31, 2015 |
| Net sales | | $211,350 |
| Expenses | | |
| Cost of goods sold | $74,500 | |
| Selling expenses | 54,500 | |
| General and administrative expenses | 32,500 | |
| | |
| | |
| Total expenses | | 161,500 |
| Net income | | $49,850 |
|
|
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11.
| Valley Company’s adjusted trial balance on August 31, 2015, its fiscal year-end, follows. |
| | | Debit | | | Credit | |
| Merchandise inventory | | $ | 41,000 | | | | |
| Other (noninventory) assets | | | 130,400 | | | | |
| Total liabilities | | | | | $ | 25,000 | |
| Common stock | | | | | | 10,000 | |
| Retained earnings | | | | | | 94,550 | |
| Dividends | | | 8,000 | | | | |
| Sales | | | | | | 225,600 | |
| Sales discounts | | | 2,250 | | | | |
| Sales returns and allowances | | | 12,000 | | | | |
| Cost of goods sold | | | 74,500 | | | | |
| Sales salaries expense | | | 32,000 | | | | |
| Rent expense—Selling space | | | 8,000 | | | | |
| Store supplies expense | | | 1,500 | | | | |
| Advertising expense | | | 13,000 | | | | |
| Office salaries expense | | | 28,500 | | | | |
| Rent expense—Office space | | | 3,600 | | | | |
| Office supplies expense | | | 400 | | | | |
| |
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| |
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| |
| Totals | | $ | 355,150 | | $ | 355,150 | |
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|
|
On August 31, 2014, merchandise inventory was $25,400. Supplementary records of merchandising activities for the year ended August 31, 2015, reveal the following itemized costs.
|
| | |
| Invoice cost of merchandise purchases | $ | 92,000 |
| Purchase discounts received | | 2,000 |
| Purchase returns and allowances | | 4,500 |
| Costs of transportation-in | | 4,600 |
|
| Required: |
| 1. | Prepare closing entries as of August 31, 2015 (the perpetual inventory system is used). |
| Date | General Journal | Debit | Credit |
| Aug 31 | Sales | 225,600 | |
| Income summary | | 225,600 |
| | | |
| Aug 31 | Income summary | 175,750 | |
| Sales discounts | | 2,250 |
| Sales returns and allowances | | 12,000 |
| Cost of goods sold | | 74,500 |
| Sales salaries expense | | 32,000 |
| Rent expense—Selling space | | 8,000 |
| Store supplies expense | | 1,500 |
| Advertising expense | | 13,000 |
| Office salaries expense | | 28,500 |
| Rent expense—Office space | | 3,600 |
| Office supplies expense | | 400 |
| | | |
| Aug 31 | Income summary | 49,850 | |
| Retained earnings | | 49,850 |
| | | |
| Aug 31 | Retained earnings | 8,000 | |
| Dividends | | 8,000 |
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12.
Allied Parts was organized on May 1, 2015, and made its first purchase of merchandise on May 3. The purchase was for 2,000 units at a price of $10 per unit. On May 5, Allied Parts sold 1,500 of the units for $14 per unit to Baker Co. Terms of the sale were 2/10, n/60.
| a. |
On May 7, Baker returns 200 units because they did not fit the customer’s needs. Allied Parts restores the units to its inventory.
|
| b. |
On May 8, Baker discovers that 300 units are damaged but are still of some use and, therefore, keeps the units. Allied Parts sends Baker a credit memorandum for $600 to compensate for the damage.
|
| c. |
On May 15, Baker discovers that 100 units are the wrong color. Baker keeps 60 of these units because Allied Parts sends a $120 credit memorandum to compensate. Baker returns the remaining 40 units to Allied Parts. Allied Parts restores the 40 returned units to its inventory.
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Prepare the appropriate journal entries for Baker Co. to record the May 5 purchase and each of the three separate transactions. Baker is a retailer that uses a perpetual inventory system and purchases these units for resale.
| Date | General Journal | Debit | Credit |
| May 05 | Merchandise inventory | 21,000 | |
| Accounts payable | | 21,000 |
| | | |
| May 07 | Accounts payable | 2,800 | |
| Merchandise inventory | | 2,800 |
| | | |
| May 08 | Accounts payable | 600 | |
| Merchandise inventory | | 600 |
| | | |
| May 15 | Accounts payable | 680 | |
| Merchandise inventory | | 680 |
|
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13.
Santa Fe Company purchased merchandise for resale from Mesa Company with an invoice price of $24,000 and credit terms of 3/10, n/60. The merchandise had cost Mesa $16,000. Santa Fe paid within the discount period. Assume that both buyer and seller use a perpetual inventory system.
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| 1. |
Prepare the entries that Santa Fe should record for the above transactions.
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| Transaction | General Journal | Debit | Credit |
| 1 | Merchandise inventory | 24,000 | |
| Accounts payable | | 24,000 |
| | | |
| 2 | Accounts payable | 24,000 | |
| Merchandise inventory | | 720 |
| Cash | | 23,280 |
| 2. |
Prepare the entries that Mesa should record for the above transactions.
|
| Transaction | General Journal | Debit | Credit |
| 1 | Accounts receivable | 24,000 | |
| Sales | | 24,000 |
| | | |
| 2 | Cost of goods sold | 16,000 | |
| Merchandise inventory | | 16,000 |
| | | |
| 3 | Cash | 23,280 | |
| Sales discounts | 720 | |
| Accounts receivable | | 24,000 |
| 3. |
Assume that the buyer borrowed enough cash to pay the balance on the last day of the discount period at an annual interest rate of 8% and paid it back on the last day of the credit period. Compute how much the buyer saved by following this strategy. (Use 365 days a year. Do not round intermediate calculations.)
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|
|
| Savings from discount taken | $720 |
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|
|
| Interest Expense on Funds Borrowed: |
| Amount borrowed | $23,280 |
| Number of days of interest | 50 |
| Interest expense | $255 |
| Buyer's net savings | $465 |
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14.
| Following are the merchandising transactions for Chilton Systems. |
| 1. |
On November 1, Chilton Systems purchases merchandise for $1,500 on credit with terms of 2/5, n/30, FOB shipping point; invoice dated November 1.
|
| 2. | On November 5, Chilton Systems pays cash for the November 1 purchase. |
| 3. |
On November 7, Chilton Systems discovers and returns $200 of defective merchandise purchased on November 1 for a cash refund.
|
| 4. |
On November 10, Chilton Systems pays $90 cash for transportation costs with the November 1 purchase.
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| 5. |
On November 13, Chilton Systems sells merchandise for $1,600 on credit. The cost of the merchandise is $800.
|
| 6. |
On November 16, the customer returns merchandise from the November 13 transaction. The returned items are priced at $300 and cost $130; the items were not damaged and were returned to inventory.
|
Journalize the above merchandising transactions for Chilton Systems assuming it uses a perpetual inventory system.
|
| Date | General Journal | Debit | Credit |
| Nov 01 | Merchandise inventory | 1,500 | |
| Accounts payable | | 1,500 |
| | | |
| Nov 05 | Accounts payable | 1,500 | |
| Merchandise inventory | | 30 |
| Cash | | 1,470 |
| | | |
| Nov 07 | Cash | 196 | |
| Merchandise inventory | | 196 |
| | | |
| Nov 10 | Merchandise inventory | 90 | |
| Cash | | 90 |
| | | |
| Nov 13 | Accounts receivable | 1,600 | |
| Sales | | 1,600 |
| | | |
| Nov 13 | Cost of goods sold | 800 | |
| Merchandise inventory | | 800 |
| | | |
| Nov 16 | Sales returns and allowances | 300 | |
| Accounts receivable | | 300 |
| | | |
| Nov 16 | Merchandise inventory | 130 | |
| Cost of goods sold | | 130 |
