Chapter 4: 4-17QS (page 208)
Refer to QS 4-5 and prepare journal entries to record each of the merchandising transactions assuming that the company records purchases using the gross method and a periodic inventory system.
Both sides of the journal totals$12,000.
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Refer to QS 4-9 and prepare journal entries to close the balances in temporary revenue and expense accounts. Remember to consider the entry for shrinkage that is made to solve QS 4-9.
Valley Company’s adjusted trial balance on August 31, 2017, 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 discount | 2,250 | |
Sales return and allowances | 12,000 | |
Cost of goods sold | 74,500 | |
Sales salaries expenses | 32,000 | |
Rent expenses – selling space | 8,000 | |
Store supplies expenses | 1,500 | |
Advertising expenses | 13,000 | |
Office salaries expenses | 28,500 | |
Rent expenses – office space | 3,600 | |
Office supplies expenses | 400 | |
Total | \(355,150 | \)355,150 |
On August 31, 2016, merchandise inventory was \(25,400. Supplementary records of merchandising activities for the year ended August 31, 2017, reveal the following itemized costs.
Invoice cost of merchandise purchased | \)92,000 |
Purchase discount received | 2,000 |
Purchase return and allowances | 4,500 |
Cost of transportation-in | 4,600 |
Required
1. Compute the company’s net sales for the year.
2. Compute the company’s total cost of merchandise purchased for the year.
3. Prepare a multiple-step income statement that includes separate categories for net sales, cost of goods sold, selling expenses, and general and administrative expenses.
4. Prepare a single-step income statement that includes these expense categories: cost of goods sold, selling expenses, and general and administrative expenses.
Barkley Company’s adjusted trial balance on March 31, 2017, its fiscal year-end, follows.
Debit | Credit | |
Merchandise inventory | \(56,500 | |
Other (noninventory) assets | 202,600 | |
Total liabilities | \)42,500 | |
Common stock | 10,000 | |
Retained earnings | 154,425 | |
Dividends | 3,000 | |
Sales | 332,650 | |
Sales discount | 5,875 | |
Sales return and allowance | 20,000 | |
Cost of goods sold | 115,600 | |
Sales salaries expenses | 44,500 | |
Rent expenses – selling space | 16,000 | |
Store supplies expenses | 3,850 | |
Advertising expenses | 26,000 | |
Office salaries expenses | 40,750 | |
Rent expenses – office space | 3,800 | |
Office supplies expenses | 1,100 | |
Total | \(539,575 | \)539,575 |
On March 31, 2016, merchandise inventory was \(37,500. Supplementary records of merchandising activities for the year ended March 31, 2017, reveal the following itemized costs.
Invoice cost of merchandise purchases | \)138,500 |
Purchase discount received | 2,950 |
Purchase return and allowances | 6,700 |
Cost of transportation-in | 5,750 |
Required
1. Compute the company’s net sales for the year.
2. Compute the company’s total cost of merchandise purchased for the year.
3. Prepare a multiple-step income statement that includes separate categories for net sales, cost of goods sold, selling expenses, and general and administrative expenses.
4. Prepare a single-step income statement that includes these expense categories: cost of goods sold, selling expenses, and general and administrative expenses.
Compute the current ratio and acid-test ratio for each of the following separate cases. (Round ratios to two decimals.) Which company situation is in the best position to meet short-term obligations? Explain.
Case X | Case Y | Case Z | |
Cash | \(2,000 | \)110 | \(1,000 |
Short-term investment | 50 | 0 | 580 |
Current receivables | 350 | 470 | 700 |
Inventory | 2,600 | 2,420 | 4,230 |
Prepaid expenses | 200 | 500 | 900 |
Total current assets | \)5,200 | \(3,500 | \)7,410 |
Current liabilities | \(2,000 | \)1,000 | $3,800 |
Prepare journal entries to record the following merchandising transactions of IKEA, which uses the perpetual inventory system and gross method. (Hint: It will help to identify each receivable and payable; for example, record the purchase on May 2 in Accounts Payable—Havel.)
May 2 Purchased merchandise from Havel Co. for \(10,000 under credit terms of 1∕15, n∕30, FOB shipping point, invoice dated May 2.
4 Sold merchandise to Rath Co. for \)11,000 under credit terms of 2∕10, n∕60, FOB shipping point, invoice dated May 4. The merchandise had cost \(5,600.
5 Paid \)250 cash for freight charges on the purchase of May 2.
9 Sold merchandise that had cost \(2,000 for \)2,500 cash.
10 Purchased merchandise from Duke Co. for \(3,650 under credit terms of 2∕15, n∕60, FOB destination, invoice dated May 10.
12 Received a \)650 credit memorandum from Duke Co. for the return of a portion of the merchandise purchased on May 10.
14 Received the balance due from Rath Co. for the invoice dated May 4, net of the discount.
17 Paid the balance due to Havel Co. within the discount period.
20 Sold merchandise that cost \(1,450 to Tamer Co. for \)2,800 under credit terms of 2∕15, n∕60, FOB shipping point, invoice dated May 20.
22 Issued a \(300 credit memorandum to Tamer Co. for an allowance on goods sold on May 20. 4
25 Paid Duke Co. the balance due, net of the discount.
30 Received the balance due from Tamer Co. for the invoice dated May 20, net of discount and allowance.
31 Sold merchandise that cost \)3,600 to Rath Co. for $7,200 under credit terms of 2∕10, n∕60, FOB shipping point, invoice dated May 31.
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