Chapter 5: Q5-4RQ (page 265)
What is the Cost of Goods Sold (COGS), and where is it reported?
The cost of goods sold is the cost of goods that has been sold to the customers by a business, and the same is reported in the income statement.
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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?
Journalize the following sales transactions for Salem Sportswear. Explanations are not required. The company estimates sales returns at the end of each month.
Jul. 1 Salem sold \(20,000 of men’s sportswear for cash. Cost of goods sold is \)10,000.
3 Salem sold \(62,000 of women’s sportswear on account, credit terms are 3/10, n/30. Cost of goods is \)31,000.
5 Salem received a \(4,500 sales return on damaged goods from the customer on July 1. Cost of goods damaged is \)2,250.
10 Salem receives payment from the customer on the amount due, less discount.
Journalize the following transactions for Master Bicycles using the periodic inventory system. Explanations are not required.
Nov. 2 Purchased \(3,400 of merchandise inventory under terms 2/10, n/EOM, and FOB shipping point.
6 Returned \)800 of defective merchandise purchased on November 2.
8 Paid freight bill of \(100 on November 2 purchase.
10 Sold merchandise inventory on account for \)6,100. Payment terms were 3/15, n/45.
11 Paid amount owed on credit purchase of November 2, less the return and the discount.
22 Received cash from November 10 customer in full settlement of their debt, less the discount.
What account is debited when recording a purchase of inventory when using a periodic inventory system?
Consider the following transactions for Garman Packing Supplies:
Apr. 10 Garman Packing Supplies buys \(175,000 worth of merchandise inventory on account with credit terms of 1/10, n/30.
12 Garman returns \)15,200 of the merchandise to the vendor due to damage during shipment.
19 Garman paid the amount due, less the return and discount.
Requirements
1. Journalize the purchase transactions assuming Garman Packing Supplies uses the periodic inventory system. Explanations are not required.
2. What is the amount of net purchases?
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