Chapter 4: Q22E (page 213)
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.
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For each item below, indicate whether the statement describes a multiple-step income statement or a single-step income statement.
a. Multiple-step income statement b. Single-step income statement
1. Commonly reports detailed computations of net sales and other costs and expenses.
2. Statement limited to two main categories (revenues and expenses).
3. Reports gross profit as a separate line item.
4. Reports net income equal to income from operations adjusted for any nonoperating items.
Compute net sales, gross profit, and the gross margin ratio for each separate case a through d. Interpret the gross margin ratio for case a.
a | b | c | d | |
Sales | \(150,000 | \)550,000 | \(38,700 | \)255,700 |
Sales discount | 5,000 | 17,500 | 600 | 4,800 |
Sales return and allowances | 20,000 | 6,000 | 5,100 | 900 |
Cost of goods sold | 79,750 | 329,589 | 24,453 | 126,500 |
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.
Chico Company allows its customers to return merchandise within 30 days of purchase.
a. Prepare the December 31, 2017, year-end adjusting journal entry for estimated future sales returns and allowances (revenue side).
b. Prepare the December 31, 2017, year-end adjusting journal entry for estimated future inventory returns and allowances (cost side).
c. Prepare January 3, 2018, journal entry(ies) to record the merchandise returned.
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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