21) Journalize the following transactions for Park Gift Shop. Explanations are not required. Park uses a
perpetual inventory system.
Mar. 5: Purchased $4,400 of merchandise inventory on account, 3/10, n/EOM and FOB shipping point.
Mar. 9: Returned $700 of defective merchandise purchased on March 5.
Mar. 11: Paid the freight bill of $250 on the March 5 purchase.
Mar. 12: Sold merchandise inventory on account for $5,200., 2/15, n/30. These goods cost the company
$3,700.
Mar. 14: Paid amount owed on credit purchase of March 5, less the return and the discount.
Mar. 30: Received cash from the March 12 customer in full settlement of the debt.
22) When a customer returns goods to the seller, the seller needs to debit Estimated Returns Inventory.
The seller uses the perpetual inventory system.
23) Under the new revenue recognition standard, companies should only record sales revenue in the
amount they expect to eventually realize.
24) Each time a sale is recorded, two journal entries are also recorded to account for estimated sales
returns.
25) When a seller grants a sales allowance, the customer does not return any goods to the seller.
26) Under the perpetual inventory system, when a seller grants a sales allowance, ________.
A) Merchandise Inventory is debited
B) a credit memo is issued
C) Estimated Refunds Payable are increased
D) the seller receives any nonstandard goods
27) Regarding the end of period adjusting entries to record estimated sales returns, which of the
following statements is correct? (Assume the perpetual inventory system is used.)
A) Companies use data published by the FASB to estimate the amount of sales returns related to the sales
of similar companies.
B) It is acceptable to prepare a single adjusting entry which debits Estimated Returns Inventory and
credits Refunds Payable.
C) Both Sales Revenue and Cost of Goods Sold accounts are decreased.
D) Estimated Returns Inventory is an income statement account.
28) After making a sale, a seller may have customers that return goods. The seller uses the perpetual
inventory system. This requires the seller to ________.
A) use historical data to record sales revenue in the amount that is expected to be received
B) record two adjusting entries to account for the estimated returns
C) reduce sales and cost of goods sold for the period
D) All of the statements are correct.
29) The Estimated Returns Inventory account ________.
A) is an expense account
B) is a liability account
C) is credited when a customer returns merchandise to the seller
D) represents the selling price of goods the company believes it will receive in returns
30) A merchandiser sold merchandise inventory on account. The journal entry to record a sales allowance
in the books of the merchandiser, using the perpetual inventory system would be:
A)
Sales Returns and Allowances
XX
Merchandise Inventory
XX
B)
Refunds Payable
XX
Accounts Receivable
XX
C)
Cost of Goods Sold
XX
Sales Returns and Allowances
XX
D)
Estimated Returns Inventory
XX
Accounts Receivable
XX
31) Under the perpetual inventory system, the adjusting journal entries to record estimated sales returns
(the original sales were on account) would be:
A)
Sales Revenue
XX
Merchandise Inventory
XX
Estimated Returns Inventory
XX
Refunds Payable
XX
B)
Sales Revenue
XX
Refunds Payable
XX
Estimated Returns Inventory
XX
Cost of Goods Sold
XX
C)
Accounts Receivable
XX
Sales Revenue
XX
Sales Revenue
XX
Cost of Goods Sold
XX
D)
Sales Returns and Allowances
XX
Cost of Goods Sold
XX
Merchandise Inventory
XX
Accounts Receivable
XX
32) For the year ended December 31, 2019, Davidson Mart had sales of $800,000 and cost of goods sold of
$600,000. Davidson estimates that approximately 2% of the merchandise sold will be returned. The
adjusting journal entry on December 31, 2019, would include a ________.
A) debit to Cost of Goods Sold for $12,000
B) credit to Refunds Payable for $16,000
C) credit to Estimated Returns Inventory for $12,000
D) debit to Sales Revenue for $4,000
33) A customer returned merchandise purchased with cash with a sales price of $4,500. The cost of goods
was $1,800. Which of the following represents the correct way to record this transaction?
A)
Refunds Payable
4,500
Sales Revenue
4,500
Merchandise Inventory
1,800
Estimated Returns Inventory
1,800
B)
Refunds Payable
4,500
Cash
4,500
Merchandise Inventory
1,800
Estimated Returns Inventory
1,800
C)
Sales Revenue
4,500
Cash
4,500
Merchandise Inventory
1,800
Cost of Goods Sold
1,800
D)
Sales Returns and Allowances
4,500
Cash
4,500
Estimated Returns Inventory
1,800
Merchandise Inventory
1,800
34) On March 18, James Smith purchased $5,000 of furniture from Home Furnishings on account. The cost
of the goods was $3,000. On March 20, Home Furnishings granted the customer a $1,000 sales allowance
for goods damaged in transit. Which of the following represents the correct way to record this
transaction?
A)
Sales Revenue
1,000
Cash
1,000
B)
Refunds Payable
1,000
Cash
1,000
Merchandise Inventory
600
Estimated Returns Inventory
600
C)
Refunds Payable
1,000
Accounts Receivable
1,000
D)
Sales Returns and Allowances
1,000
Cash
1,000
35) Rally Auto Supplies, Inc. uses a perpetual inventory system. Journalize the following sales
transactions for this company. Explanations are not required.
June 10
Sold $14,800 of merchandise on account, n/30. Cost of goods is $6,200.
June 14
Received a $900 sales return from the customer. Cost of the goods is $400.
June 20
Rally Auto Supplies receives payment from the customer for the amount due
from the June 10 sale.
36) Office Supplies, Inc. uses a perpetual inventory system. Journalize the following sales transactions for
this company. Explanations are not required.
July 3: Sold $15,400 of merchandise on account, credit terms are n/30. Cost of goods is $9,300.
July 7: Received a $750 sales return from the customer. Cost of the goods is $435.
July 20: Received payment from the customer.