Chapter 5: Q5-10RQ (page 294)
What is a purchase return? How does a purchase allowance differ from a purchase return?
Purchase returns are the service provided to the customers to return the goods bought from the seller.
Purchase allowances are the additional incentives granted by a business to the purchasers.
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Consider the following transactions for Burlington Drug Store:
Feb. 2 Burlington buys \(23,800 worth of inventory on account with credit terms of 2/15, n/30, FOB shipping point.
4 Burlington pays a \)50 freight charge.
9 Burlington returns $5,200 of the merchandise due to damage during shipment.
14 Burlington paid the amount due, less return and discount.
Requirements
1. Journalize the purchase transactions. Explanations are not required.
2. In the final analysis, how much did the inventory cost Burlington Drug Store?
What financial statement is merchandise inventory reported on, and in what section?
Journalize the following sales transactions for Austin Mall. Assume Austin Mall uses the gross method to record sales revenue. Explanations are not required.
Jan. 4 Sold \(10,000 of antiques on account, credit terms are 1/15, n/30. Cost of goods is \)5,000.
20 Austin Mall received payment from the customer on the amount due from Jan. 4.
20 Sold \(5,200 of antiques on account, credit terms are 1/10, n/45, FOB destination. Cost of goods is \)2,600.
20 Austin Mall paid $120 on freight out.
29 Received payment from the customer on the amount due from Jan. 20, less the discount.
Consider the following transactions for Toys and More:
May 8 Toys and More buys \(113,300 worth of MegoBlock toys on account with credit terms of 2/10, n/60.
12 Toys and More returns \)11,250 of the merchandise to MegoBlock due to damage during shipment.
15 Toys and More paid the amount due, less the return and discount.
Requirements
1. Journalize the purchase transactions. Explanations are not required.
2. In the final analysis, how much did the inventory cost Toys and More?
Clink Electric uses the periodic inventory system. Clink reported the following selected amounts at May 31, 2018:
Merchandise Inventory, June 1, 2017 \( 16,000 Freight In \) 6,000
Merchandise Inventory, May 31, 2018 21,500 Net Sales Revenue 138,000
Purchases 81,000 Common Stock 32,000
Purchase Discounts 3,000 Retained Earnings 17,000
Purchase Returns and Allowances 6,600
Compute the following for Clink:
a. Cost of goods sold.
b. Gross profit.
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