37) Journalize the following transaction for a merchandiser that uses the perpetual inventory system.
Received returned goods from a customer, $1,000 (cost, $740). The goods were sold on account. Omit
explanation.
38) Freight in is a delivery expense to the seller.
39) Freight charges to ship goods to customers is recorded as a debit to Delivery Expense.
40) A company ships goods to a customer and pays transportation costs. To the seller, the transportation
costs are ________.
A) freight out
B) freight in
C) sales commission
D) brokerage
41) Under the perpetual inventory system, the journal entry to record the freight paid by the seller on
goods sold is:
A)
Accounts Receivable
XX
Freight Out
XX
Sales Revenue
XX
B)
Delivery Expenses
XX
Cash
XX
C)
Cost of Goods Sold
XX
Cash
XX
D)
Merchandise Inventory
XX
Cash
XX
42) Delivery expense is a(n) ________.
A) administrative expense
B) part of Cost of Goods Sold
C) operating expense
D) overhead expense
43) Neighborhood Lawn Equipment uses a perpetual inventory system. Journalize the following sales
transactions for this company. Explanations are not required.
May 18: Sold $26,000 of merchandise on account, credit terms are 1/10, n/30, FOB destination.
Cost of goods is $15,600.
May 22: Neighborhood negotiated a $600 allowance on the goods sold on May 18.
May 24: Neighborhood paid freight of $450 on the goods sold on May 18.
1) A merchandiser adjusts and closes accounts differently than a service entity does.
2) Merchandisers must adjust for estimated sales returns and inventory shrinkage.
3) The loss of inventory that occurs because of theft, damage, and errors is referred to as inventory
shrinkage.
4) When a company uses the perpetual inventory system, there is no need to conduct a physical count of
inventory.
5) The Merchandise Inventory account should stay current at all times in a perpetual inventory system.
6) In a perpetual inventory system, the entry that adjusts the Merchandise Inventory account based on the
physical count equals the merchandise inventory balance before adjustment less actual merchandise
inventory on hand.
7) The entry to record inventory shrinkage includes a debit to the Merchandise Inventory account.
Assume a perpetual inventory system is used.
8) If a physical count of inventory indicates that the Merchandise Inventory account is overstated, an
adjusting entry is required to record the difference. Assume a perpetual inventory system is used.
9) The Merchandise Inventory account balance is $52,000. A physical count of inventory reveals that the
actual inventory balance is $41,000. Which of the following would be included in the adjusting entry?
(Assume a perpetual inventory system.)
A) a $41,000 credit to Merchandise Inventory
B) a $52,000 debit to Cost of Goods Sold
C) a $11,000 credit to Cost of Goods Sold
D) a $11,000 credit to Merchandise Inventory
10) The Merchandise Inventory account of a company shows a balance of $30,000, but a physical count of
inventory shows $29,000. Which of the following entries is required to record the shrinkage? (Assume a
perpetual inventory system.)
A)
Cost of Goods Sold
1,000
Shrinkage Expense
1,000
B)
Merchandise Inventory
1,000
Cost of Goods Sold
1,000
C)
Cost of Goods Sold
1,000
Merchandise Inventory
1,000
D)
Cash
1,000
Merchandise Inventory
1,000
11) The general ledger shows a balance of $66,600 in the Merchandise Inventory account at the end of the
period. The physical inventory count shows inventory of $63,400. (Assume a perpetual inventory
system.) The adjusting entry includes a ________.
A) debit to Cost of Goods Sold and a credit to Merchandise Inventory for $3,200
B) debit to Cost of Goods Sold and a credit to Cash for $3,200
C) debit to Merchandise Inventory and a credit to Cost of Goods Sold for $3,200
D) debit to Merchandise Inventory and a credit to Cash for $3,200
12) York Merchandising Company uses a perpetual inventory system. At the end of the accounting
period, a physical count of merchandise inventory reveals a balance of $76,500. The books show a
balance of $78,200.
(a) Prepare the adjusting entry. Omit explanation.
(b) Discuss the possible causes for the difference between the physical count and the balance in the
books.
(c) How does this affect net income?
13) Gift Shops Unlimited’s unadjusted Merchandise Inventory at December 31, 2019 was $7,600. The cost
associated with the physical count of inventory on hand on December 31, 2019 was $7,350. In addition,
Gift Shops Unlimited estimated approximately $800 of merchandise sold on account will be returned
with a cost of $450. Assume a perpetual inventory system is used.
Requirements:
1. Journalize the adjustment for inventory shrinkage. Omit explanation.
2. Journalize the adjustment for estimated sales returns. Omit explanation.
14) The entry to close Sales Discounts Forfeited will include a debit to Income Summary.
15) The last step of the closing process of a merchandiser is to make the expense accounts equal zero via
the Income Summary account.
16) When using the perpetual inventory system, the entry to close Cost of Goods Sold will include a debit
to Income Summary.
17) The entry to close Sales Revenue includes a debit to Income Summary.
18) The Sales Revenue, Delivery Expense, and Sales Discounts Forfeited accounts will be closed via the
________ account.
A) Income Summary
B) Retained Earnings
C) Dividends
D) Stockholders’ Equity
19) The Income Summary account has a credit balance of $27,000 after the revenue and expense accounts
have been closed. Which of the following is credited to close the Income Summary account?
A) Dividends
B) Sales Revenue
C) Cost of Goods Sold
D) Retained Earnings
20) An adjusted trial balance is given below.
Debit
Credit
Cash
$13,000
Accounts Receivable
2,000
Prepaid Rent
700
Merchandise Inventory
25,000
Accounts Payable
$4,100
Salaries Payable
2,000
Notes Payable
800
Common Stock
8,000
Retained Earnings
3,800
Dividends
1,000
Sales Revenue
86,900
Cost of Goods Sold
23,000
Salaries Expense
18,000
Rent Expense
12,000
Selling Expense
8,500
Delivery Expense
1,800
Supplies Expense
600
Total
$105,600
$105,600
What will be the final balance in the corporation’s Retained Earnings account after recording the closing
entries?
A) $25,800
B) $26,800
C) $14,000
D) $2,800