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Chapter 4: 4-19QS (page 208)

ProBuilder has the following June 30, 2016, fiscal-year-end unadjusted balances: Allowance for Sales Discounts, \(0; and Accounts Receivable, \)10,000. Of the \(10,000 of receivables, \)2,000 are within a 3% discount period, meaning that it expects buyers to take \(60 in future discounts arising from this period’s sales.

a. Prepare the June 30, 2016, fiscal-year-end adjusting journal entry for future sales discounts.

b. Assume the same facts above and that there is a \)10 fiscal-year-end unadjusted credit balance in the Allowance for Sales Discounts. Prepare the June 30, 2016, fiscal-year-end adjusting journal entry for future sales discounts.

Short Answer

Expert verified
  1. The allowance will be made for$60.
  2. The journal entry will include an allowance of$50 because there is already a credit balance of $10.

Step by step solution

01

Definition of Sales Discount

Reduction of price offered by a company to its customers is known as sales discount. It is provided to attract buyers towards products of the company

02

Adjusting entry for future sales discount

Date

Accounts and explanation

Debit $

Credit $

30 June 2016

Sales discount

$60

Allowance for sales discount

$60

03

Adjusting entry with credit balance of $10 in allowance for sales discount

Date

Accounts and explanation

Debit $

Credit $

30 June 2016

Sales discount

$50

Allowance for sales discount

$50

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Most popular questions from this chapter

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.

Identify similarities and differences between the acid-test ratio and the current ratio. Compare and describe how the two ratios reflect a company’s ability to meet its current obligations.

The following unadjusted trial balance is prepared at fiscal year-end for Foster Products Company.

Rent expense and salaries expense are equally divided between selling activities and general and administrative activities. Foster Products Company uses a perpetual inventory system.

Required

1. Prepare adjusting journal entries to reflect each of the following:

a. Store supplies still available at fiscal year-end amount to \(3,700.

b. Expired insurance, an administrative expense, for the fiscal year is \)2,800.

c. Depreciation expense on store equipment, a selling expense, is \(3,000 for the fiscal year.

d. To estimate shrinkage, a physical count of ending merchandise inventory is taken. It shows \)21,300 of inventory is still available at fiscal year-end.

2. Prepare a multiple-step income statement for fiscal year 2017 that begins with gross sales and includes separate categories for net sales, cost of goods sold, selling expenses, and general and administrative expenses.

3. Prepare a single-step income statement for fiscal year 2017.

4. Compute the current ratio, acid-test ratio, and gross margin ratio as of October 31, 2017. (Round ratios to two decimals.)

Refer to Exercise 4-7 and prepare journal entries to record each of the merchandising transactions assuming that the perpetual inventory system and the net method are used by both the buyer and the seller.

Refer to Exercise 4-3 and prepare journal entries to record each of the merchandising transactions assuming that the buyer uses the periodic inventory system and the gross method.
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