chapter_5_accounting_for_merchandising_operations

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Unformatted text preview: ACCOUNTING FOR MERCHANDISIN G OPERATIONS Chapter 5 5-1 Recording purchases of merchandise using a perpetual inventory system. The following transactions were completed by the Dunn Company during May. May 1 Purchased merchandise from Moore Co., $500, terms 2/ 15, n/45, FOB shipping point. May 3 Paid freight on purchase ofMay 1, $75. May 9 Purchased machinery for cash, $1,000 from Lapp Co. May 10 Returned damaged merchandise to Moore Co. from May 1 purchase and was granted a $100 allowance. . May 1 1 Paid amount due to Moore Co. on May 1 purchase. May 12 Purchased supplies for cash, $50, from McMurry Co. a) Record the May transactions in the general journal under a perpetual inventory system. General Journal Date Account Titles Ref. Debit { .4 .A I. A I.- ” I --£ ' Ill-’4 ‘coi henr -- l ’ 11> -"_ NOE Cash ‘ o PUP [00 Meaghandfie fmvanfirg I05P L g H 23/10 300 (.95? 39.2 [flefifl andise. Ebvcnhfg 8 i 1L5 50 a H ' SO Chapter 5 —Accounting for Merchandising Operations Page 57 b) Post only the inventory and accounts payable transactions to the T—accounts below Merchandise Inventory Accounts Payable 590 I a 0 /oo 5'00 75 8 400 467 49" c) Dunn takes a physical inventory and determines that inventory on hand is $450. Record the entry'to adjust merchandise inventory General Journal LI] l 2 Recording sales of merchandise using a perpetual inventory system. The following transactions were completed by Arch Company during September. Sept. 4 Sold merchandise to Gale Co. on account $1,000, FOB destination terms 2/10,n/30. The merchandise cost $600. Sept. 5 Paid freight on September 4 sale, $80. Sept. 7 Accepted merchandise returns from Gale Co. related to the September 4 sale. The selling price of the returns was $200 and the cost of the returns was $80. Sept. 14 Received amount due from Gale Co. on September 4 sale. Page 58 Chapter 5 — Accounting for Merchandising Operations a) Record the September transactions in the general j oumal using a perpetual inventory system. General Journal m I’l-Im-_Ii I-—II I_-_I_I I-mI—I I ._ v . ., —I-mI I_——I—I mI—I —II I —I—I E ' 0° I —I—I I mI—I m EMII—I I maI—I I —II I —I_I —I—I —I—I —I—I I —I—I " HI' —I b) From the information in part a, compute net sales, gross profit, and gross profit rate. Net sales: Gross profit: Gross profit rate: Sales /000 Net Sales 737 6.? gen] _. jade/5 R*H - ZOO __ (105—3 ‘§RO 7J5: 72L} " 7o -$ales Disc/T - /(, G P a“! Not fiqiw 79L! Chapter 5 —Accounting for Merchandising Operations Page 59 5—3 Preparing a multiple—step income statement. The following summarized information was taken from the income statement columns of the worksheet of Lind Co. for the year ended December 31, 2004 , Sales $1000 Sales Returns and Allowances 10 Sales Discount 5 Cost of Goods Sold 600 Selling Expenses 90 Administrative Expense 75 Interest Revenue 6 Loss on Sale of Equipment 4 a) Prepare a multiple-step income statement. Lind Company Income Statement For the Year Ending December 31, 200“! Sales Revenue: Sales Less: Sales returns & allowances Sales discounts Net sales Cost of goods sold Gross rofit Oerating expenses: Selling expenses Administrative expenses Total operating expenses Income from oerations Other revenues and gains: Other expenses and losses: Net income 000 'v ‘, g : i\ I i 9.: p p b) COmpute the gross profit rate. if 325.“ » N3 : — 39870 Page 60 Chapter 5 — Accounting for Merchandising Operations c) Prepare a single step income statement Lind Company Income Statement For the Year Ended December 31, 200G] Revenues: A I, cs _ AI er f ‘ ean L x’n.‘ Expenses: 06- el’fn ’ n ' A r .m. ‘ve, arenas ' i l - 4 ' " A 038 yo ., I. 9-) ~ ~ i \ (1) Prepare the journal entries to record the closing entries, assuming the owner, John Lind, had $25 of withdrawals. General Journal IE3- I I I I I I I I I I I I I I I I I I I I I I I I I I ’ ... :_ \ O o \ O ‘ ‘ B c - Chapter 5 —Accounting for Merchandising Operations Page 61 5-4 Identify account type, financial statements, and normal balances. Indicate for the following accounts the: a) Account type (asset, contra—asset, liability, revenue, contra-revenue, expense) b) Financial statement the account would appear on 0) Normal balance d) Whether it is permanent or temporary Financial Normal Permanent or Account Type Statement Balance Temporary Sales e 3:5 C _ Cash $5471” fig [)3 , , Freight—Out : “S a IS Qg ‘ _ Sales Discount Cg} f ,-.S D g Accounts Receivable Q SSQL Dg rm _ Cost of Good Sold E x a“ St 3:“ TE 2 Merchandise Inventory A2552 1‘ _ e3 4 Accounts Payable (Hub; I (w ()9 NM . Sales Returns and Allowances cmfcv IS DIE L—_. ‘ M40, Accumulated Depreciation W4 53d (33 C, c rm , Advertising Expense E x 2mm Dgr .Ewro 5-5 Preparing a multiple—step income statement under a periodic inventory system. The following information was taken from the records of Marty’s Merchandise Bazaar for the year ending December 31, 2009. Sales $125,000 Sales returns & allowances 5,000 Sales discounts 3,000 Inventory, Jan. 1 10,000 Purchases 70,000 Purchase returns & allowances 1,000 Purchase discounts 2,000 Freight—in 5,000 Inventory, Dec. 31 12,000 Sales salaries expense 13,000 Advertising expense 2,000 Office salaries expense 5,000 Utilities expense 4,000 Depreciation expense 3,000 Property tax expense 1,000 Page 62 Chapter 5 ~ Accounting for Merchandising Operations a) Compute the following: 1) Netsales. Sales [25000 lass: Sales ha? i «u —‘ 5,000 Salas buom-ts — 3 (900 N£+ SQI¢$ 2) Net purchases. pumfieh 70’ 000 less: Burckrejttqll -— l, 000 “Vt/“59 “5°” - 2 coo Net Purchases 67 000 3) Cost ofgoods purchased. ' Na Purchase-‘3 57,000 mMJ Freight-in + ST. 00 0 Cost (If—3&5 Fun/Wei 73:000 4) Cost of goods available for sale. Befiimhin- In? IOIOOO + (VF Para/W cl {*EOOO‘ Costefgcls Mail ‘11 34% 32,000 5) Cost of goods sold. COS+ of 5&5 Quail L) ‘ EMUth va' -l2,ooo Cost 01? goods 50M 70,0:‘33‘ 6) Gross profit. Maj~ Sana H-IGOO “C'OG‘é " 70 000 Gross profit— 472000 b) Assume the sales salaries and advertising are selling expenses. All other expenses are administrative expenses. Complete the multiple-step income statement by placing these accounts and amounts in their proper place on the income statement. Chapter 5 ~Accounting for Merchandising Operations Page 63 Mart 's Merchandise Bazaar Income Statement For the Year Ended December 31, 2009 Sales Revenue Les ‘ a/rs I fir 561/85 D/§(o(¢n‘25 1. Net Sales Cost of goods sold a, emhf' I "- I Ffflicgkfrin 3. Cost ofgoods purchased 4. Cost of goods available for sale 7 (—LHUCM ( . ‘m '1}- 5. Cost of goods sold 6. Gross Profit Page 64 Chapter 5 — Accounting for Merchandising Operations 5-6A Recording purchases and sales of merchandise using a periodic inventory system. Record journal entries for the following transactions completed by the Hogan Company during October. Oct. '1 Purchased merchandise on account from Goldberg Co., $3 00, FOB shipping point, terms 2/10, n/50. Oct. 3 Paid freight on Golberg purchase, $40. Oct. 4 Returned damaged merchandise and received credit from Goldberg, $50. Oct. 10 Paid Goldberg the balance owed. Oct. 15 Sold merchandise on account to Norton Co. $100, 1/10, n/30. Oct. 16 Norton returned merchandise on account, $20. The merchandise was damaged and was discarded by the Hogan Company. Oct. 23 Received amount due from Norton C0. General Journal ,Im iIIl-I-Ii - — _ — é {m-mn-l; . lumv_--za-_ i g-IIWL, :-_--aali ;--_-_-_l imm_--- 1 §---_--{ g-E-r .. . 01mm ----5l; - _-_-_Il 3mr_--m--l ,-I-—--loEI! ;---_-_Ii {mm-mu—l; .- -— — — ; sm_-'nm-lt !---—m—l§ l-I-EV_-_-IMI; =-I_-_I_I; --—-_-—l Chapter 5 —Accounting for Merchandising Operations Page 65 5-7A Comparison ofthe perpetual and periodic inventory systems. a) Prepare journal entries to record the following transactions for Snowdon Company using the 1) perpetual inventory system and 2) periodic inventory system. Perpetual Periodic 1) Purchased 1,000 shoes for $2,000 on credit, terms 2/10, n/30, FOB shipping point. 3) Prepared a debit memorandum showing that 200 shoes had been returned to the supplier because the shoes were the wrong style. 4) Paid the amount due within the discount period less the return and discount. .73" Page 66 Chapter 5 — Accounting for Merchandising Operations 5) Sold 300 shoes on credit for $1,350, terms 2/10, n/30, FOB destination. M‘Kefl/mfig _‘ 350 Maj—f ’ “o :4 (6.5 [£50 6 1550 m 900 f (20772“; boo 6) Paid freight costs to deliver sale to customer, $100. Chapter 5 —Accounting for Merchandising Operations Page 67 b) Post the journal entries from part a) to the selected T accounts below. Pergetual Periodic Inventory Accounts Payable Invento 20 0 O 1/00 lb00 9' Accounts Pa able Purchases Returns Cost of Goods Sold Purchases & Allowances éOO. IOO 1000 900 500 Accounts Receivable Sales F reight—in Purchase Discounts I350 315' I350 [50 31 HRS ’8’ Sales Returns and Allowances Sales Discounts Accounts Receivable Sales 31§ 215D I350 gag I350 - I I 35 Sales Returns and Allowances Sales Discounts 115' 1150 Page 68 Chapter 5 — Accounting for Merchandising Operations 5-8 Accounting terms and concepts. Listed below are several accounting terms and concepts. Match the letter of each with the appropriate phrase which states its meaning. [7? l-wr W h l— |3 l” W Chapter 5 — Accounting for Merchandising Operations 11. a. Contra revenue accounts h. Returns and allowances b. Cost of goods sold i. Discounts 0. FOB destination j. FOB shipping point (:1. Gross profit k. Merchandisers e. Invoice 1. Net income f. Merchandise inventory m. Operating expenses g. Credit terms n. Sales revenue 1. Businesses that earn a profit by selling goods to customers rather than by performing services for customers. 2. Primary source of revenue in a merchandising company. 3. An expense equal to the total cost of the merchandise sold during the period in which sales revenues were earned. 4. Sales revenue less cost of goods sold. Represents the amount of the mark—up over cost or “merchandising profit” of a company. 5. Expenses incurred in the process of earning sales revenue, excluding cost of goods sold. 6. Sales revenue less cost of goods sold less all other expenses. Also called the “bottom line” of a company’s income statement. 7. An current asset that represents the cost of the merchandise being held for eventual sale. 8. A document prepared by the seller that shows the relevant information about a sale. 9. Merchandise is returned or a price reduction is given. For the seller, this reduces sales; for the customer, this reduces inventory. 10. Specify the amount and time period for the cash discount and the length of time before full payment is due. Reductions in price granted for the prompt payment of the balance due. Page 69 12. Buyer pays the freight charge, which is recorded as a debit to Merchandise Inventory. C 13. Seller pays the freight charge, which is recorded as a debit to a separate expense account. CL 14. Accounts used to highlight reductions to revenue due to returns, allowances and discounts rather than directly record these reductions as debits in the revenue account. 5—9 Accounting terms and concepts. Listed below are several accounting terms and concepts. Match the letter of each with the appropriate phrase which states its meaning Single—step income statement Non—operating activities Cost of goods available for sale Income from operations Multiple—step income statement Gross profit rate h. i. j. Net purchases k. Periodic inventory system 1. m. Perpetual inventory system Net sales Cost of goods purchased Purchases Cost of goods sold i'qormgocrs» 1. Sales less the contra revenue accounts. CL 2. Gross profit divided by net sales. Tells how many cents of each sales dollar goes to gross profit. l 3. A financial statement that includes various informative sub totals and provides users. with useful information about the company’s profit—making activities. tr t 4. Revenues, expenses, gains and losses that are not related to the primary profit- making operations of the company. Viewed as non-recurring and therefore short— tCUH. C, 5. Will be equal to net income when there are no non-operating items. Viewed as sustainable and therefore long-term. Clearly identifies the results of the company’s normal operations. 6. All data is classified as either revenue or expense. No distinction is made between operating and non—operating items. 7. The cost of goods sold is determined each time a sale occurs. l» l? Page 70 Chapter 5 — Accounting for Merchandising Operations 8. The cost of goods sold is determined only at the end ofthe accounting period. 9. A temporary account used to record the purchase of merchandise inventory under the periodic inventory system. 10. Purchases less returns, allowances and discounts. 1 1. Net purchases plus freight-in. 12. Beginning inventory plus cost of goods purchased. 13. Cost of goods available for sale less ending inventory. J» Mel; blr \ Chapter 5 ~Accounting for Merchandising Operations Page 71 ...
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This note was uploaded on 05/20/2008 for the course ACCOUNTING ACC102 taught by Professor Murphy during the Spring '07 term at Monroe CC.

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chapter_5_accounting_for_merchandising_operations -...

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