Chapter 4: 4-15DQ (page 205)
Buyers negotiate purchase contracts with suppliers. What type of shipping terms should a buyer attempt to negotiate to minimize freight-in costs?
The buyer must try to negotiate theshipping term FOB destination
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Refer to the balance sheet and income statement for Apple in Appendix A. What does the company title its inventory account? Does the company present a detailed calculation of its cost of goods sold?
Use the data for Valley Company in Problem 4-3A to complete the following requirements.
Required
1. Prepare closing entries as of August 31, 2017 (the perpetual inventory system is used).
Analysis Component
2. In prior years, the company experienced a 4% returns and allowance rate on its sales, which means approximately 4% of its gross sales were eventually returned outright or caused the company to grant allowances to customers. Compute the ratio of sales returns and allowances divided by gross sales. How does this year’s ratio compare to the 4% ratio in prior years?
Prepare journal entries to record the following transactions for a retail store. The company uses a perpetual inventory system and the gross method.
Apr. 2 Purchased \(4,600 of merchandise from Lyon Company with credit terms of 2∕15, n∕60, invoice dated April 2, and FOB shipping point.
3 Paid \)300 cash for shipping charges on the April 2 purchase.
4 Returned to Lyon Company unacceptable merchandise that had an invoice price of \(600.
17 Sent a check to Lyon Company for the April 2 purchase, net of the discount and the returned merchandise.
18 Purchased \)8,500 of merchandise from Frist Corp. with credit terms of 1∕10, n∕30, invoice dated April 18, and FOB destination.
21 After negotiations, received from Frist a \(500 allowance toward the \)8,500 owed on the April 18 purchase.
28 Sent check to Frist paying for the April 18 purchase, net of the allowance and the discount.
BTN 4-6 Official Brands’s general ledger and supplementary records at the end of its current period reveal the following.
Sales, gross | \(600,000 | Merchandise inventory | \)98,000 |
Sales return and allowances | 20,000 | Invoice cost of merchandise purchases | 360,000 |
Sales discount | 13,000 | Purchase discount received | 9,000 |
Cost of transportation-in | 22,000 | Purchase return and allowances | 11,000 |
Operating expenses | 50,000 | Merchandise inventory (end of period) | 84,000 |
Required
1. Each member of the team is to assume responsibility for computing one of the following items. You are not to duplicate your teammates’ work. Get any necessary amounts to compute your item from the appropriate teammate. Each member is to explain his or her computation to the team in preparation for reporting to the class.
2. Check your net income with the instructor. If correct, proceed to step
3. Assume that a physical inventory count finds that actual ending inventory is $76,000. Discuss how this affects previously computed amounts in step 1.
Why do companies offer a cash discount?
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