Chapter 4: Q5DQ (page 205)
How does a company that uses a perpetual inventory system determine the amount of inventory shrinkage?
Particular | Amount $ |
Reported inventory | xx |
Less: Inventory reported in the physical count | (xx) |
Inventory shrinkage | xx |
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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.
What items appear in the financial statements of merchandising companies but not in the statements of service companies?
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.
Distinguish between cash discounts and trade discounts for purchases. Is the amount of a trade discount on purchased merchandise recorded in the accounts?
Refer to Google’s income statement in Appendix A. What title does it use for the cost of goods sold?
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