Chapter 4: Q4DQ (page 205)
Why do companies offer a cash discount?
A cash discount motivates the buyer to make cash payments earlier and maintain a positive relationship.
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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?
What items appear in the financial statements of merchandising companies but not in the statements of service companies?
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.
Refer to QS 4-5 and prepare journal entries to record each of the merchandising transactions assuming that the company records purchases using the net method and a perpetual inventory system.
Prepare journal entries to record each of the following transactions. The company records purchases using the gross method and a perpetual inventory system.
Aug. 1 Purchased merchandise with an invoice price of $60,000 and credit terms of 3∕10, n∕30.
11 Paid supplier the amount owed from the August 1 purchase.
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