Chapter 5: Q5-18RQ (page 294)
What is inventory shrinkage? Describe the adjusting entry that would be recorded to account for inventory shrinkage.
Inventory shrinkage refers to an expense that reducesthe inventory values of the business entities.
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The unadjusted trial balance for Trudel Electronics Company at March 31, 2018, follows:
TRUDEL ELECTRONICS COMPANY
Unadjusted Trial Balance
March 31, 2018
Balance
Account Title Debit Credit
Cash \(4,000
Accounts Receivable 38,800
Merchandise Inventory 45,500
Office Supplies 6,500
Equipment 130,000
Accumulated Depreciation-Equipment \)36,800
Accounts Payable 17,400
Unearned revenue 13,200
Notes Payable, long-term 48,000
Common Stock 60,000
Retained Earnings 100
Dividends 20,000
Sales Revenue 282,500
Cost of Goods Sold 160,600
Salaries Expense (Selling) 20,000
Rent Expense (Selling) 15,800
Salaries Expenses (Administrative) 5,700
Utilities Expenses (Administrative) 11,100
Total \(458,000 \)458,000
Requirements
1. Journalize the adjusting entries using the following data:
a. Interest revenue accrued, \(200.
b. Salaries (Selling) accrued, \)2,300.
c. Depreciation Expense—Equipment (Administrative), \(1,300.
d. Interest expense accrued, \)1,500.
e. A physical count of inventory was completed. The ending Merchandise Inventory should have a balance of \(45,200.
f. Trudel estimates that approximately \)6,000 of merchandise sold will be returned with a cost of $1,200.
2. Prepare Trudel Electronics’s adjusted trial balance as of March 31, 2018.
3. Prepare Trudel Electronics’s multi-step income statement for year ended March 31, 2018.
How is gross profit calculated, and what does it represent?
Describe the calculation of cost of goods sold when using the periodic inventory system.
What are the four steps involved in the closing process for a merchandising company?
Taylor Department Store uses a periodic inventory system. The adjusted trial balance of Taylor Department Store at December 31, 2018, follows:
TAYLOR DEPARTMENT STORE
Adjusted Trial Balance
December 31, 2018
Balance
Account Title Debit Credit
Cash \(7,900
Accounts Receivable 85,300
Merchandise Inventory (beginning) 37,600
Office Supplies 300
Furniture 83,000
Accumulated Depreciation-Furniture \)18,500
Accounts Payable 28,500
Salaries Payable 2,900
Unearned Revenue 14,500
Notes Payable, long-term 32,000
Common Stock 20,000
Retained Earnings 45,400
Dividends 89,000
Sales Revenue 380,800
Purchases 284,000
Purchase Returns and Allowances 110,000
Purchase Discounts 7,000
Freight-In 100
Selling Expense 42,900
Administrative Expense 26,300
Interest Expense 3,200
Total \(659,600 \)659,600
Requirements
1. Prepare Taylor Department Store’s multi-step income statement for the year ended December 31, 2018. Assume ending Merchandise Inventory is $36,700.
2. Journalize Taylor Department Store’s closing entries.
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