Chapter 5: Q5-6RQ (page 294)
What are the two types of inventory accounting systems? Briefly describe each.
The two major types of inventory accounting systems are periodic and perpetual inventory systems.
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Describe FOB shipping point and FOB destination. When does the buyer take ownership of the goods, and who typically pays the freight?
Journalize the following sales transactions for Sierra Tractors. Explanations are not required.
June 5 Sierra sold \(20,000 of inventory on account, credit terms are 4/10, n/30. Cost of goods is \)10,000. Sierra uses the gross method to record sales revenue.
12 Sierra receives payment from the customer on the amount due, less the discount.
Ocean Life Boat Supply uses the periodic inventory method. The adjusted trial balance of Ocean Life Boat Supply at December 31, 2018, follows:
Requirements
1. Journalize the required closing entries at December 31, 2018. Assume ending Merchandise Inventory is $54,300.
2. Set up T-accounts for Income Summary; Retained Earnings; and Dividends. Post the closing entries to the T-accounts, and calculate their ending balances.
3. How much was Ocean Life’s net income or net loss?
Dobbs Wholesale Antiques makes all sales under terms of FOB shipping point. The company usually ships inventory to customers approximately one week after receiving the order. For orders received late in December, Kathy Dobbs, the owner, decides when to ship the goods. If profits are already at an acceptable level, Dobbs delays shipment until January. If profits for the current year are lagging behind expectations, Dobbs ships the goods during December.
Requirements
1. Under Dobbs’s FOB policy, when should the company record a sale?
2. Do you approve or disapprove of Dobbs’s manner of deciding when to ship goods to customers and record the sales revenue? If you approve, give your reason. If you disapprove, identify a better way to decide when to ship goods. (There is no accounting rule against Dobbs’s practice.)
Suppose Muddyriver.com sells 2,000 books on account for \(19 each (cost of these books is \)22,800), credit terms 1/20, n/45 on October 10, to The Salem Store. The Salem Store paid the balance to Muddyriver.com on October 22.
Requirements
1. Journalize the Salem Store’s October transactions.
2. Journalize Muddyriver.com’s October transactions. Assume Muddyriver.com uses the gross method to record sales revenue.
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