CHAPTER 5

MERCHANDISING OPERATIONS

Summary of Question TYPEs by LEARNING Objective, Level of difficulty, BLOOM’S TAXONOMY, CPA CODES, and AACSB Codes

LOD: E = Easy M = Medium

Bloom’s: AP = Application C = Comprehension K = Knowledge

CPA: F = Financial Reporting

AACSB: AN = Analytic

*This topic is dealt with in Appendix A to the chapter.

**This topic is dealt with in Appendix B to the chapter.

Summary of Question TYPEs by LEARNING Objective, Level of difficulty, BLOOM’S TAXONOMY, CPA CODES, and AACSB Codes

(Cont’d)

LOD: E = Easy M = Medium H = Hard

Bloom’s: AP = Application C = Comprehension K = Knowledge

CPA: F = Financial Reporting

AACSB: AN = Analytic

*This topic is dealt with in Appendix A to the chapter.

**This topic is dealt with in Appendix B to the chapter.

Summary of Question TYPEs by LEARNING Objective, Level of difficulty, BLOOM’S TAXONOMY, CPA CODES, and AACSB Codes

(Cont’d)

LOD: E = Easy M = Medium H = Hard

Bloom’s: AN = Analysis AP = Application C = Comprehension K = Knowledge

CPA: E = Professional and Ethical Behaviour F = Financial Reporting

AACSB: AN = Analytic C = Communication E = Ethics

*This topic is dealt with in Appendix A to the chapter.

**This topic is dealt with in Appendix B to the chapter.

SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE

Note: TF = True-False MC = Multiple Choice Ma = Matching

Ex = Exercise SAE = Short-Answer Essay CP = CPA Questions

*This topic is dealt with in Appendix A to the chapter.

**This topic is dealt with in Appendix B to the chapter.

CHAPTER LEARNING OBJECTIVES

1. Identify the differences between service and merchandising companies. A service company performs services. It has service or fee revenue and operating expenses. A merchandising company sells goods. It has sales revenue, cost of goods sold, and gross profit in addition to operating expenses. Both types of companies may also report non-operating items and each would report income tax expense.

There are two types of inventory systems: perpetual inventory systems and periodic inventory systems. In a perpetual inventory system, the cost of goods sold and ending inventory amounts are always known. This is not the case with a periodic inventory system in which these amounts can be determined only after an inventory count. In addition to providing more timely information, perpetual inventory systems have the added advantages of enabling management to determine the extent of any theft of inventory and establish automatic reordering points.

2. Record purchases under a perpetual inventory system. The Inventory account is debited for all purchases of merchandise and for freight costs if those costs are paid by the buyer (freight terms FOB shipping point). The Inventory account is credited for purchase discounts, and purchase returns and allowances. Freight terms are used to determine when the ownership of inventory changes hands. If the terms are FOB destination, then the inventory remains an asset of the seller until it reaches the buyer’s place of business. If the terms are FOB shipping point, then the inventory becomes an asset of the buyer as soon as it is shipped.

Purchase discounts are discounts provided by the seller to encourage the buyer to pay for credit purchases in advance of the due date. When they are taken, they must be accounted for because they reduce the cost of inventory purchases that have already been recorded. Quantity discounts are related to volume purchases of inventory and are offered at the time of purchase. They do not have to be separately accounted for because they simply reduce the purchase price, which is then used to record the inventory purchase.

An inventory count must be taken at least once per year so that any inventory shortages due to theft or shrinkage can be accounted for. This is done by adjusting cost of goods sold and inventory.

3. Record sales under a perpetual inventory system. When inventory is sold, two entries are required: (1) Cash or Accounts Receivable is debited and Sales is credited for the selling price of the merchandise, and (2) Cost of Goods Sold is debited and Inventory is credited for the cost of inventory items sold. When using the five-step model, sales returns and allowances are considered to be a variable consideration. As a result, the estimated sales returns and allowances reduce the amount of revenue that can be recognized. A refund liability is established for these estimated amounts at the time of sale. Two journal entries are also required for sales returns so that the refund liability can be adjusted and so that inventory can be adjusted by the cost of the returned merchandise (if its condition would enable the company to resell it). Freight costs paid by the seller (shipping terms FOB destination) are recorded as an operating expense.

Sales involving multiple performance obligations require the transaction price to be allocated to the performance obligations on the basis of their stand-alone selling prices. Once each performance obligation is satisfied, that portion of the transaction price can be recognized as revenue.

4. Prepare a single-step and a multiple-step income statement. In a single-step statement of income, all data (except for income tax expense) are classified under two categories—revenues or expenses—and income before income tax is determined in one step. Income tax expense is separated from the other expenses and reported separately after income before income tax to determine net income (loss).

A multiple-step statement of income shows several steps in determining net income. Step 1 deducts cost of goods sold from sales to determine gross profit. Step 2 deducts operating expenses (which can be classified by nature or by function) from gross profit to determine income from operations. Step 3 adds or deducts any non-operating items to determine income before income tax. Finally, Step 4 deducts income tax expense to determine net income (loss).

A comprehensive statement of income reports comprehensive income, which is the sum of net income and other comprehensive income amounts. Other comprehensive income includes unrealized gains and losses that result from adjusting certain assets and liabilities to their fair value at the end of each reporting period.

5. Calculate the gross profit margin and profit margin. The gross profit margin, calculated by dividing gross profit by sales, measures the gross profit earned for each dollar of sales. The profit margin, calculated by dividing net income by sales, measures the income earned for each dollar of sales. Both are measures of profitability that are closely watched by management and other interested parties. Generally, management’s aim is to maximize both gross profit margin and profit margin.

*6. Record purchases and sales under a periodic inventory system (Appendix 5A). The periodic inventory system differs from the perpetual inventory system in that separate temporary accounts are used in the periodic system to record (1) purchases, (2) purchase returns and allowances, (3) purchase discounts, and (4) freight costs that are paid by the buyer (shipping terms FOB shipping point). The formula for cost of goods purchased is as follows: Purchases – purchase returns and allowances – purchase discounts = net purchases; and net purchases + freight in = cost of goods purchased.

In a periodic inventory system, only one journal entry is made to record a sale of merchandise because the cost of goods sold is not recorded throughout the period. Instead, the cost of goods sold is determined at the end of the period, after an inventory count has been completed.

To determine the cost of goods sold, first calculate the cost of goods purchased, as indicated above. Then, calculate the cost of goods sold as follows: Beginning inventory + cost of goods – purchased = cost of goods available for sale; and cost of goods available for sale – ending inventory = cost of goods sold.

At the end of the period, the Inventory account is adjusted to reflect its proper balance as determined from the inventory count results. The change in this account is allocated to the Cost of Goods Sold account as are the balances in the Freight In and Purchases accounts and any related contra accounts.

The statement of financial position, statement of changes in equity, and statement of cash flows are no different in a periodic inventory system than in a perpetual inventory system. However, a multiple-step statement of income includes more detail in the cost of goods sold section in a periodic inventory system.

**7. Account for sales returns and sales discounts under ASPE (Appendix 5B). Under ASPE, sales are recorded at their full amount, even when returns are expected to occur. When inventory that was sold is returned by a customer, the seller will record two journal entries if a perpetual system is used. First, the seller will debit sales returns and allowances and credit cash or accounts receivable by an amount equal to the sales price of the returned goods. Secondly, if the returned inventory can be sold again, the seller will debit inventory and credit cost of goods sold by the cost initially paid for that inventory. The second entry would not be recorded if the company used a periodic system. If the seller offers sales discounts, the seller will record the amount of the discount when receiving payment from the customer within the discount period. At that time, the seller will debit cash and sales discounts and credit accounts receivable. Both sales returns and allowances and sales discounts are contra-accounts to sales.

TRUE-FALSE STATEMENTS

1. A physical inventory count should be done at least once a year regardless of whether a perpetual or periodic inventory system is being used.

2. The operating cycle of a merchandising company is generally shorter than that of a service company.

3. Under a perpetual inventory system, the cost of goods sold is determined each time a sale occurs.

4. Inventory is usually the largest current asset for a merchandiser.

5. Cost of Goods Sold is considered an operating expense for a merchandising company.

6. Operating expenses are subtracted from revenue for a service company and from gross profit for a merchandising company.

7. Cost of goods available for sale is considered an operating expense for a merchandising company.

8. When the terms of sale are FOB shipping point, the seller is responsible for any damages to the goods during shipping.

9. Freight terms will specify the point at which ownership of the goods is transferred from the seller to the buyer.

10. Freight costs incurred on incoming merchandise are an operating expense to the buyer.

11. The terms 2/10, n/30 mean that a 2% discount is allowed on payments made over 10 days but within the credit period.

12. If merchandise costing $2,500, terms 2/10 n/30, is paid within 10 days, the amount of the purchase discount is $250.

Ex. 161

Brandon Furniture Limited has 20 coffee tables on hand at January 1, which cost $300 each at the time of purchase. Brandon purchased 35 coffee tables during the year for a total cost of $11,900. During the year, 40 systems were sold at a selling price of $525 each. According to the company’s perpetual inventory system, the company had sold all of the tables that were on hand at the beginning of the year and 10 of the tables purchased during the year.

Instructions

Determine the amount, in both units and dollars, of cost of goods sold for the year and ending inventory.

Ex. 162

Ann-Marie Carver is a new accountant with Ornell Corporation. Ornell purchased merchandise on account for $10,000. The credit terms are 2/10, n/30. Ann-Marie has talked with the company's banker and knows that she could earn 10% on any money invested in the company's savings account.

Instructions

(a) Should Ann-Marie pay the invoice within the discount period or should she keep the $10,000 in the savings account and pay at the end of the credit period (i.e., after 30 days)? Support your recommendation with a calculation showing which action would be best.

(b) If Ann-Marie forgoes the discount, it may be viewed as paying an interest rate of 2% for the use of $10,000 for 20 days. Calculate the annual rate of interest that this is equivalent to.

Ex. 163

Magnesium Inc. uses a perpetual inventory system. During April, the following transactions occurred:

Apr 3 Purchased $2,000 of merchandise, terms 3/10, n/60.

6 Returned $300 of the merchandise purchased on April 3.

7 Paid freight charges of $150 on goods purchased on April 3.

12 Paid for the goods purchased on April 3.

13 Sold goods costing $600 on credit for $1,000. Estimated returns are 10%.

14 The customer of April 13 returned $300 of the goods that had a cost of $180.

23 Received payment from the customer of April 13.

Instructions

Prepare journal entries to record the above transactions.

Ex. 164

Jun 4 Willem Corporation purchased $4,000 worth of merchandise, terms n/30 from Cate Corporation. The cost of the merchandise to Cate was $2,600. Returns are estimated at 15%.

10 Willem returned $700 worth of goods to Cate for full credit. The goods had a cost of $450 to Cate and were placed back into inventory.

26 Willem paid the account.

Instructions

Prepare the journal entries to record these transactions in (a) Willem’s records and (b) Cate’s records. Both companies use the perpetual inventory system.

Ex. 165

On July 1, Racquets Plus had an inventory of 20 tennis racquets at a cost of $125 each. Racquets Plus uses a perpetual inventory system and estimates returns at 10%. During the month of July, the following transactions occurred:

Jul 4 Purchased 25 racquets at a cost of $125 each from the Tennis Gear Corporation, terms n/30.

5 Paid freight of $100 on the July 4 purchase.

6 Sold 10 racquets from the July 1 inventory to Team Canada for $225 each, terms n/30.

7 Received a credit from Tennis Gear for the return of 2 defective racquets.

8 Sold two racquets from the July 1 inventory for $550 cash.

13 Team Canada returned a defective racquet.

14 Paid Tennis Gear in full.

15 Received payment from Team Canada.

Instructions

Record the July transactions for Racquets Plus.

Ex. 166

On September 1, Wilderness Inc. had an inventory of 18 backpacks at a cost of $30 each. The company uses a perpetual inventory system and estimates returns at 8%. During September, the following transactions occurred:

Sep 4 Purchased 35 backpacks at $30 each from Back Packs Unlimited, terms n/30.

6 Received credit of $150 for the return of 5 backpacks purchased on Sept. 4 that were defective.

9 Sold 20 backpacks for $50 each to University Supply, terms n/30.

14 Paid Back Packs Unlimited in full.

18 Received payment from University Supply.

Instructions

Record the September transactions for Wilderness Inc.

Ex. 167

Gia’s Gymnastics Gear uses a perpetual inventory system. The following transactions occurred in July:

Jul 6 Purchased $1,800 of merchandise on credit, terms 1/10, n/30.

8 Because some of the items purchased on July 6 had a small defect, Gia’s Gymnastics Gear received a purchase allowance of $175.

9 Paid freight charges of $75 on the items purchased July 6.

19 Sold merchandise on credit for $1,800, terms n/30. The merchandise had a cost of $900. The company uses a 5% estimate for returns.

22 Of the merchandise sold on July 19, $200 of it was returned. The items had cost Gia’s$100 and were returned to inventory.

28 Received payment from the customer of July 19.

31 Paid for the merchandise purchased on July 6.

Instructions

Record the July transactions for Gia’s Gymnastics Gear.

Ex. 168

(a) Arbour Corporation purchased merchandise on account from Lavalle Supplies for $136,000, with terms of 2/10, n/30. During the discount period, Arbour returned some merchandise and paid $113,680 as payment in full. Arbour uses a perpetual inventory system. Prepare the journal entries that Arbour made to record the

1. purchase of merchandise.

2. return of merchandise.

3. payment on account.

(b) Ransak Corporation sold merchandise to Belville Corporation on account for $168,000 with credit terms n/30 and returns are estimated at 15%. The cost of the merchandise sold was $84,000. Belville returned $28,000 worth of merchandise and paid its account in full. The returned goods were returned to inventory. Both companies use a perpetual inventory system. Prepare the journal entries that Ransak Corporation made to record the

1. sale of merchandise.

2. return of merchandise.

3. collection on account.

Ex. 169

On June 1, Grill Master Ltd. had an inventory of 10 barbeques at a cost of $440 each. Grill Master uses a perpetual inventory system. During the month of June the following transactions occurred:

Jun 3 Purchased 25 barbeques at a cost of $440 each from BBQ King Ltd., terms n/30.

5 Paid $200 freight for the barbeques purchased on June 3.

6 Sold 12 barbeques to Outdoor Grill for $760 each, terms n/30. Returns are estimated at 5%.

7 Received credit from BBQ King for the return of two defective barbeques.

13 Outdoor Grill returned a defective barbeque.

16 Received a credit from BBQ King for the defective barbeque returned by Outdoor Grill.

19 Purchased 10 barbeques from Backyard Barbecues at a cost of $440 each, terms 2/10, n/30.

20 Paid freight of $200 on the June 19 purchase.

Instructions

Prepare journal entries to record the above transactions.

Ex. 170

On January 3 Blue Bayou purchase goods from Atlantic Corporation for $1,250. The cost to Atlantic Corporation for the goods was $710. Atlantic estimates no returns. The freight terms were FOB shipping point at a cost of $150, which was paid in cash.

Instructions

Assuming both companies use a perpetual inventory system, prepare the appropriate journal entries for:

(a) Blue Bayou

(b) Atlantic Corporation

*Ex. 171

Presented below are selected transactions for Manclave Corporation during July.

Jul 1 Sold merchandise to Regina Inc. for $1,000, terms n/30 and no returns are estimated. The merchandise sold cost $600.

2 Purchased merchandise from Novalle Corporation for $5,200, terms 4/10, n/30.

3 Paid freight charges of $150 on items purchased on July 2.

4 Purchased merchandise from Ollie Company Ltd. for $7,500, n/30.

10 Received payment from Regina Inc. for purchase of July 1.

11 Paid Novalle Corporation for July 2 purchase.

Instructions

(a) Record the above transactions for Manclave Corporation, assuming a perpetual inventory system is used. The cost of goods sold on July 1 was determined to be $400.

(b) Record the above transactions for Manclave Corporation, assuming a periodic inventory system is used.

Ex. 172

On September 3, Advantage Corporation sold 30,000 of merchandise to Hopeless Inc., terms n/30. Advantage uses a perpetual inventory system and the cost of the goods sold was $18,000. Advantage’s management expects a return rate of 6%.

Instructions

Record the appropriate transactions on Advantage’s books assuming that the company uses a perpetual inventory system.

Ex. 173

Plattens Inc. reported the following selected information:

Instructions

Calculate the following amounts for Plattens Inc.:

(a) gross profit

(b) income from operations

(c) income before income tax

(d) net income

Ex. 174

Financial information is presented here for two companies. Complete the missing amounts.

Empty Corporation Full Corporation

Cost of goods sold $26,000 $?

Gross profit ? 38,000

Income tax expense 6,500 9,000

Sales 47,000 67,000

Operating expenses 8,000 ?

Net income ? 9,000

Income before income tax 13,000 18,000

Ex. 175

State the missing items identified by ?.

(a) Gross profit – Operating expenses =?

(b) Net income + ?+?-? = Income from operations

(c) Income from operations +? –? = Income before income tax

(d) Sales – Cost of goods sold =?

(e) Cost of goods sold + Gross profit =?

Ex. 176

The following information was taken from the adjusted trial balance of Lucifer Lighting Inc. at December 31, 2022. All accounts have normal balances.

Accounts payable $ 52,000

Accounts receivable 18,700

Accumulated depreciation—Building 44,900

Advertising expense 38,500

Building 600,000

Cash 85,000

Common shares 417,500

Cost of goods sold 410,500

Depreciation expense 12,000

Freight out 22,000

Interest expense 5,700

Interest income 2,000

Rental revenue 6,000

Retained earnings, Jan 1 154,800

Salaries expense 279,500

Salaries payable 5,200

Sales 761,300

Utilities expense 9,200

Instructions

Use the above information to prepare a multiple-step statement of income for the year ended December 31, 2022.

Ex. 177

The following information is available for Labrador Ltd. for calendar 2022:

Cost of goods sold 1,190,000

Income tax expense 9,000

Interest expense 30,000

Interest income 38,000

Operating expenses 194,000

Sales $1,406,000

Instructions

(a) Use the above information to prepare a multiple-step statement of income for the year ended December 31, 2022.

(b) Calculate the gross profit margin and the profit margin for 2022.

Ex. 178

The adjusted trial balance of Sandhu Corporation at December 31, 2022 included the following selected accounts:

Debit Credit

Advertising expense $ 15,000

Cost of goods sold 347,000

Depreciation expense 3,296

Freight out 2,000

Income tax expense 32,000

Interest expense 19,000

Interest income $ 15,000

Sales revenue 509,500

Salaries expense 45,000

Utilities expense 18,000

Instructions

(a) Use the above information to prepare a multiple-step statement of income for the year ended December 31, 2022.

(b) Calculate the gross profit margin and the profit margin for 2022.

Ex. 179

The adjusted trial balance of Jayco Corporation at December 31, 2022 included the following selected accounts:

Debit Credit

Advertising expense $ 45,000

Cost of goods sold 592,000

Depreciation expense 4,200

Freight out 11,200

Income tax expense 74,280

Interest expense 12,500

Interest income $ 15,000

Salaries expense 248,000

Sales revenue 1,158,000

Utilities expense 12,500

Instructions

(a) Use the above information to prepare a multiple-step statement of income for the year ended December 31, 2022.

(b) Calculate the gross profit margin and the profit margin for 2022.

**Ex. 180

Financial information is presented here for two companies:

Company A Company B

Cost of goods sold $385,000 $?

Gross profit 395,000 438,000

Income tax expense 38,000 ?

Net sales 780,000 923,000

Operating expenses ? 190,000

Net income ? 198,400

Income before income tax 190,000 248,000

Sales ? 950,000

Sales discounts 6,000 ?

Sales returns 14,000 18,000

Instructions

(a) Calculate the missing amounts for each company.

(b) For each company, calculate the gross profit margin and the profit margin.

(c) Which company is more profitable?

**Ex. 181

Financial information is presented here for two companies.

Instructions

(a) Fill in the missing amounts.

(b) Calculate the profit margin and the gross profit margin for each company.

Ex. 182

Selected information from Coleman Inc.’s statement of income for three years is indicated below:

Instructions

(a) Calculate the gross profit margin for each year and comment on any trend in the percentages.

(b) Calculate the profit margin for each year and comment on any trend in the percentages.

Ex. 183

The following information is available from recent financial statements of Competitor A and Competitor B:

(Amounts in millions)

Competitor A Competitor B

Cost of goods sold $21,761 $27,257

Income tax expense 361 766

Sales 29,656 36,704

Operating expenses 7,962 10,435

Net income 594 1,072

Income before income tax 955 1,838

Instructions

(a) Calculate the profit margin and gross profit margin for each company.

(b) What conclusions can be drawn from the ratios calculated in part (a) about the relative profitability of the two companies?

Ex. 184

Select data for Leamington Ltd. is identified below:

2022 2021

Sales $5,400 $5,000

COGS 3,450 3,200

Operating Expenses 1,800 1,600

Income Tax Expense 60 100

Instructions

(a) Calculate the gross profit margin and profit margin for each year.

(b) Did Leamington Ltd.’s profitability improve or decline in 2022?

*Ex. 185

The following selected information for the year ended October 31, 2022 is for Trotman Inc.:

Advertising expense 81,500 Purchases returns and allowances 40,000

Freight In 20,000 Rent expense 24,000

Freight Out 26,000 Salaries expense 285,500

Income tax expense 52,620 Sales 1,412,000

Inventory, November 1, 2021 90,000 Utilities expense 13,200

Inventory, October 31, 2022 51,600

Purchases 800,000

Purchase discounts 12,000

Instructions

(a) Prepare a multiple-step statement of income for Trotman Inc. for the year ended October 31, 2022.

(b) Calculate the gross profit margin and profit margin for the year.

*Ex. 186

Graham Ltd. uses a periodic inventory system and has an December 31 year end. The company began the year with inventory with a cost of $194,600. When Graham’s staff counted inventory at December 31, goods with a cost of $232,200 were on hand. The company also had the following account balances at that date:

(a) Determine Graham’s cost of goods sold for the period.

(b) Prepare the adjusting entry that would be required to record Cost of Goods Sold and update the Inventory account.

*Ex. 187

Below is a series of cost of goods sold sections for four companies that use a periodic inventory system (in thousands):

Co. A Co. B Co. C Co. D

Beginning inventory (a) 35 12 (m)

Purchases 123 (e) 67 (n)

Purchase returns and allowances (b) 9 (i) 11

Net purchases 113 205 66 178

Freight in (c) 20 (j) 12

Freight out 10 12 9 8

Cost of goods purchased 147 (f) 73 (o)

Cost of goods available for sale 171 (g) (k) 190

Ending inventory (d) (h) 8 (p)

Cost of goods sold 141 235 (l) 171

Instructions

What are the amounts that should appear in the table where a letter in parentheses is shown?

*Ex. 188

On June 1, Grill Master Ltd. had an inventory of 10 barbeques at a cost of $440 each. Grill Master uses a periodic inventory system. During the month of June the following transactions occurred:

Jun 3 Purchased 25 barbeques at a cost of $440 each from BBQ King Ltd., terms n/30.

5 Paid $200 freight for the barbeques purchased on June 3.

6 Sold 12 barbeques to Outdoor Grill for $760 each, term n/30. The returns estimate was 5%.

7 Received credit from BBQ King for the return of two defective barbeques.

13 Issued a credit to Outdoor Grill for the return of one defective barbeque.

16 Received a credit from BBQ King for the defective barbeque returned by Outdoor Grill.

19 Purchased 10 barbeques from Backyard Barbecues at a cost of $440 each, terms 2/10, n/30.

20 Paid freight of $200 on the June 19 purchase.

On June 30, Grill Masters ending inventory was $6,440

Instructions

(a) Prepare journal entries to record the above transactions.

(b) Calculate the cost of goods sold for June.

*Ex. 189

Magnesium Inc. uses a periodic inventory system. During April, the following transactions occurred:

Apr 3 Purchased $2,000 of merchandise, terms 3/10, n/60.

6 Returned $300 of the merchandise purchased on April 3.

7 Paid freight charges of $150 on goods purchased on April 3.

12 Paid for the goods purchased on April 3.

13 Sold goods on credit for $1,000 termes n / 45. Returns are estimated at 10%.

14 The customer of April 13 returned $300 of the goods.

23 Received payment from the customer of April 13.

Instructions

Prepare journal entries to record the above transactions.

*Ex. 190

Pacific Supply Corporation uses a periodic inventory system. During September, the following transactions occurred:

Sep 3 Purchased 36 backpacks at $25 each from Scott Limited, terms 2/10, n/30.

6 Received credit of $100 for the return of 4 backpacks purchased on Sept. 3 that were defective.

9 Sold 20 backpacks for $45 each to Macklin Books n/30.

13 Paid Scott account in full.

Instructions

Prepare journal entries to record the above transactions.

*Ex. 191

Frater Corporation uses a periodic inventory system. During October, the following transactions occurred:

Oct 3 Purchased $32,000 of merchandise on credit, terms 4/10, n/30.

6 Returned $3,200 of the goods purchased on Oct 3.

7 Paid freight charges of $500 for goods purchased on Oct 3.

12 Paid for the goods purchased on Oct 3.

Instructions

Prepare journal entries to record the above transactions.

*Ex. 192

The most recent statement of income of Lawerence Limited includes the items listed below:

Beginning inventory $ 900,000

Freight in 20,000

Gross profit 1,400,000

Sales 3,750,000

Operating expenses 300,000

Purchases 1,520,000

Purchase discounts 35,000

Purchase returns and allowances 12,000

Instructions

Use the appropriate items listed above as a basis for calculating:

(a) Cost of goods sold.

(b) Cost of goods available for sale.

(c) Ending inventory.

*Ex. 193

Given the following information, prepare in good form the cost of goods sold section of an statement of income, using the periodic inventory system.

Beginning inventory $30,000

Ending inventory 32,000

Freight in 8,000

Purchases 76,000

Purchase discounts 1,000

Purchase returns and allowances 3,600

*Ex. 194

Three items are missing in each of the following columns and are identified by a letter.

Sales 900,000 (c)

Beginning inventory (a) 650,000

Cost of goods purchased 400,000 (d)

Ending inventory 340,000 606,000

Cost of goods sold 500,000 1,150,000

Gross profit (b) 370,000

Instructions

Calculate the missing amounts and identify them by letter.

*Ex. 195

Mendez Electronics Limited uses the periodic inventory system and prepares monthly financial statements. All accounts have been adjusted except for inventory. A physical count of inventory on September 30, 2022 indicates that $2,000 was on hand. A partial listing of adjusted account balances follows:

Accounts payable $ 7,250

Accounts receivable 8,000

Cash 22,000

Freight in 1,100

Income tax expense 1,530

Inventory, September 1 1,500

Operating expenses 23,100

Purchases 35,000

Purchase returns and allowances 350

Sales 69,250

Instructions

Prepare a multiple-step statement of income for Mendez Electronics for the month ended September 30, 2022.

**Ex. 196

The following table summarizes the sales for the month of July for Perfect Platters Wholesalers Inc. The table includes the terms, sales returns and when payment was collected for each sale.

Instructions

Calculate the cash received from each sale. Show your calculations.

**Ex. 197

Storm Inc. completed the following transactions in October:

Credit Sales Sales Returns Date of

Date Amount Terms Date Amount Collection

Oct 3 $ 800 2/10, n/30 Oct 8

11 1,200 3/10, n/30 Oct 14 $ 500 16

17 7,000 1/10, n/30 20 1,200 29

21 1,700 2/10, n/60 23 400 27

23 2,500 2/10, n/30 27 500 28

Storm uses a perpetual inventory system.

Instructions

(a) Calculate the cash received for each collection. Show your calculations.

(b) Prepare the journal entry for the

(1) Oct. 17 sale. The merchandise sold had a cost of $3,500.

(2) Oct. 23 sales return. The merchandise returned had a cost of $200 and was returned to inventory.

(3) Oct. 28 collection.