Chapter 5: Q5-22RQ (page 294)
What financial statement is merchandise inventory reported on, and in what section?
The merchandise inventory is reported in the current asset section of thebalance sheet.
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Rae Philippe was a warehouse manager for Atkins Oilfield Supply, a business that operated across eight Western states. She was an old pro and had known most of the other warehouse managers for many years. Around December each year, auditors would come to do a physical count of the inventory at each warehouse. Recently, Rae’s brother started his own drilling company and persuaded Rae to “loan” him 80 joints of 5-inch drill pipe to use for his first well. He promised to have it back to Rae by December, but the well encountered problems and the pipe was still in the ground. Rae knew the auditors were on the way, so she called her friend Andy, who ran another Atkins warehouse. “Send me over 80 joints of 5-inch pipe tomorrow, and I’ll get them back to you ASAP,” said Rae. When the auditors came, all the pipe on the books was accounted for, and they filed a “no-exception” report.
Requirements
1. Is there anything the company or the auditors could do in the future to detect this kind of fraudulent practice?
2. How would this kind of action affect the financial performance of the company?
What is a merchandiser, and what is the name of the merchandise that it sells?
Howie Jewelers had the following purchase transactions. Journalize all necessary transactions. Explanations are not required.
Jun. 20 Purchased inventory of \(5,100 on account from Sanders Diamonds, a jewelry importer. Terms were 2/15, n/45, FOB shipping point.
20 Paid freight charges, \)400.
Jul. 4 Returned \(600 of inventory to Sanders.
14 Paid Sanders Diamonds, less return.
16 Purchased inventory of \)3,500 on account from Southboro Diamonds, a jewelry importer. Terms were 2/10, n/EOM, FOB destination.
18 Received a $300 allowance from Southboro Diamonds for damaged but usable goods.
24 Paid Southboro Diamonds, less allowance, and discount.
On December 31, Jack Photography Supplies estimated that approximately 2% of merchandise sold will be returned. Sales Revenue for the year was \(80,000 with a cost of \)48,000. Journalize the adjusting entries needed to account for the estimated returns.
What is a purchase return? How does a purchase allowance differ from a purchase return?
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