Ch 5 Homework Solutions Nobles 6e.docx - Ch 5 Merchandizing...

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Ch. 5 Merchandizing Homework Solutions, Nobles 6e. S5-1, E5-18, S5-2, S5-3, S5-4, S5-5, E5-21. E5-22. S5-8, S5-10, S5-12. Your homework solutions follow this explanation. (Scroll down) I normally do no direct explaining here, but I want to considering this change in accounting standards. Your homework solutions follow this. New merchandiser revenue recognition rules If you have studied accounting before, then you will see that this chapter has changed. There are two ways to use the new revenue recognition rules for merchandisers, the Net Method and the Gross Method. Your book uses the Net Method. I am going to show the Gross Method also just so you can see what it looks like. Some other books use the Gross Method, or both methods, so you may see it in another courseRecording sales net of discounts- Accounts Receivable and Sales Revenue are recorded at sales price less any discountsfor early payment. 2/10, n/30 means he buyer gets a 2% discount if she pays in 10 days. Cost of goods sold is not affected by sales discounts and allowances. It is affected by returns. Ex: Seller sells goods for $5000 on account with terms of 2/10, n/30. Inventory had cost $3,500. Discount = $5,000 x.02 = 100 Sales Price $5,000 – 100 Discount = $4,900. Accounts Receivable 4,900Sales 4,900 Cost of goods sold 3,500 Inventory 3,500 If customer pays within discount period. Cash 4,900 Accounts Receivable 4,900If the customer does not pay within the discount period, she will not get the $100 Discount. She must pay the full $5,000 amount. The seller would record Sales Discounts Forfeited. Accounts receivable is credited for the net amount to shows the customer has paid in full. Cash 5,000 Accounts Receivable 4,900 Sales Discounts Forfeited 100Sales Discounts Forfeited- is a revenue account, but is recorded with Other Income and Expenses on the income statement. Adjusting Entries for estimated Sales Returns- New revenue recognition standards require: Sales revenue and accounts receivable should be reported only at the amounts expected to be realized from sales. The adjusting entry reduces accounts receivable and creates a liability account, Refunds Payable, for thesales price of expected returns and allowances. Cost of Goods Sold (an expense) is also reduced for the cost of returns, and a new asset account is created, Estimated Returns Inventory. This asset account reports the cost of expected returns. Ex: A company had sales $1,000,000 of inventory that had cost $600,000. They estimate that 4% of these sales will be returned.Sales Revenue 40,000 Refunds payable 40,000 Estimated Returns inventory 24,000Cost of Goods Sold 24,000Sales Price- Sales revenue is reduced and a liability account, Refunds Payable, is created. Debit sales revenue and credit refunds payable by Sales pricex % expected returns$1,000,000 x .04 = $40,000At Cost- Cost of cost sold is reduced and an asset account, Estimated Returns Inventory, is created.

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