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Chapter 4: Q 2QS (page 206)

Costs of \(5,000 were incurred to acquire goods and make them ready for sale. The goods were shipped to the buyer (FOB shipping point) for a cost of \)200. Additional necessary costs of \(400 were incurred to acquire the goods. No other incentives or discounts were available. What is the buyer’s total cost of merchandise inventory?

a. \)5,000 b. \(5,200 c. \)5,400 d. $5,600

Short Answer

Expert verified

The correct option is d. $5,600.

Step by step solution

01

Step-by-Step SolutionStep 1: Definition of Shipping Point

The point from which the goods are delivered to the customer is the shipping point. The goods are either transferred to the FOB shipping point or FOB destination.

02

Total cost of merchandise inventory

Particular

Amount $

Cost of goods

$5,000

Add: Shipping cost

$200

Add: Additional cost

$400

Total cost of the merchandise

$5,600

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Most popular questions from this chapter

Distinguish between cash discounts and trade discounts for purchases. Is the amount of a trade discount on purchased merchandise recorded in the accounts?

Income statement information for adidas Group, a German footwear, apparel, and accessories manufacturer, for the year ended December 31, 2014, follows. The company applies IFRS and reports its results in millions of euros. Prepare its calendar-year 2014 (1) multiple-step income statement and (2) single-step income statement.

Net income

€564

Financial income

19

Financial expenses

67

Operating profit

883

Cost of sales

7,610

Income tax

271

Income before taxes

835

Gross profit

6,924

Royalty and commission income

102

Other operating income

138

Other operating expenses

6,281

Net sales

14,534

Sydney Retailing (buyer) and Troy Wholesalers (seller) enter into the following transactions. Both Sydney and Troy use a perpetual inventory system and the gross method.

May 11 Sydney accepts delivery of \(40,000 of merchandise it purchases for resale from Troy: invoice dated May 11; terms 3∕10, n∕90; FOB shipping point. The goods cost Troy \)30,000. Sydney pays \(345 cash to Express Shipping for delivery charges on the merchandise.

12 Sydney returns \)1,400 of the \(40,000 of goods to Troy, who receives them the same day and restores them to its inventory. The returned goods had cost Troy \)1,050.

20 Sydney pays Troy for the amount owed. Troy receives the cash immediately.

1. Prepare journal entries that Sydney Retailing (buyer) records for these three transactions.

2. Prepare journal entries that Troy Wholesalers (seller) records for these three transactions.

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

The operating cycle of a merchandiser with credit sales includes the following five activities. Starting with merchandise acquisition, identify the chronological order of these five activities.

a. Prepare merchandise for sale.

b. Collect cash from customers on account.

c. Make credit sales to customers.

d. Purchase merchandise.

e. Monitor and service accounts receivable.
See all solutions

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