EXERCISES: SET B
Mrs.Williams has prepared the following list of statements about service companies and
Measuring net income for a merchandiser is conceptually different from measuring net
income for a service company.
For a merchandiser, sales less cost of goods sold is called gross profit.
For a merchandiser, the primary source of revenues is the sale of services.
Interest is an example of an operating expense.
The operating cycle of a merchandiser is the same as that of a service company.
In a perpetual inventory system, detailed inventory records of goods on hand are
In a periodic inventory system, the cost of goods sold is determined only at the end of the
A periodic inventory system provides better control over inventories than a perpetual
Identify each statement as true or false. If false, indicate how to correct the statement.
Information related to Penn Co. is presented below.
1. On April 5, purchased merchandise from Suito Company for $20,000 terms 2/10, net/30,
FOB shipping point.
2. On April 6 paid freight costs of $700 on merchandise purchased from Bata.
3. On April 7, purchased equipment on account for $29,000.
4. On April 8, returned damaged merchandise to Suito Company and was granted a $3,000
credit for returned merchandise.
5. On April 15 paid the amount due to Suito Company in full.
Prepare the journal entries to record these transactions on the books of Penn Co. under a
perpetual inventory system.
Assume that Penn Co. paid the balance due to Suito Company on May 4 instead of April 15.
Prepare the journal entry to record this payment.
On September 1, Jang Business Supply had an inventory of 40 calculators at a cost of $18
each.The company uses a perpetual inventory system. During September, the following transac-
Purchased 70 calculators at $20 each from Bruce Lee Co. for cash.
Paid freight of $68 on calculators purchased from Bruce Lee Co.
Returned 2 calculators to Bruce Lee Co. for $40 credit because they did not meet
Sold 40 calculators costing $18 for $34 each to Karl Book Store, terms n/30.
Granted credit of $34 to Karl Book Store for the return of one calculator that was not
Sold 30 calculators costing $21 (including freight) for $35 each to Sayed’s Card Shop,
Journalize the September transactions.
On June 10, Laurie Jones Company purchased $9,000 of merchandise from Powell
Company, FOB shipping point, terms 2/10, n/30. Laurie Jones pays the freight costs of $500 on
June 11. Damaged goods totaling $700 are returned to Powell for credit on June 12. The scrap
value of these goods is $300. On June 19, Laurie Jones pays Powell Company in full, less the pur-
chase discount. Both companies use a perpetual inventory system.