Chapter 05 – Accounting for Retail Businesses
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235. Details of invoices for purchases of merchandise are as follows:
Invoice
Merchandise
Freight
Freight Terms
Returns and
Allowances
Invoice A
$2,800
$45
FOB shipping point, 1/10, n/30
$200
Invoice B
7,600
60
FOB destination, n/30
800
Invoice C
1,400
55
FOB shipping point, 2/10, n/30
600
Invoice D
500
50
FOB destination, 1/10, n/30
0
What will be the total amount collected on all four invoices, assuming that credit for returns and allowances was received
prior to payment and that all invoices were paid within the discount period.
$10,653
$10,753
$10,803
$$10,863
ANSWER:
b
RATIONALE:
Invoice A: $2,800 – $200 – $26 + $45 = $2,619.
Invoice B: $7,600 – $800 = $6,800.
Invoice C: $1,400 – $600 – $16 + $55 = $839.
Invoice D: 500 – $5 = $495.
Total for the four invoices: $2,619 + $6,800 + 839 + 495 = $10,753
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Challenging
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.05–02 – LO: 05–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.17 – Inventories Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG – Analytic
DATE CREATED:
9/30/2017 10:02 PM
DATE MODIFIED:
10/16/2017 4:50 PM
236. Assume that the total inventory on hand at the end of the year as determined by taking a physical inventory is
$62,000. Of the $62,000, $8,000 has been sold FOB destination and is awaiting pickup by the carrier. What is the cost of
inventory reported on the balance sheet?
$70,000
$62,000
$58,000
$54,000
ANSWER:
b
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Multiple Choice
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Debit Memo No. 25.
What is the impact of this entry on the accounting equation?
an increase in Assets and an increase in Equity
an increase in Assets and an increase in Liabilities
a decrease in Assets and a decrease in Liabilities
a decrease in Assets and a decrease in Liabilities
ANSWER:
c
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.05–02 – LO: 05–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG – Analytic
DATE CREATED:
10/2/2017 3:43 PM
DATE MODIFIED:
10/16/2017 4:50 PM
242. The following entry was recorded in the books of Brighty Company.
Jan. 12
Inventory
8,000
Accounts Payable—HST, Inc.
8,000
Purchased inventory on account.
What is the impact of this entry on the accounting equation?
an increase in Assets and an increase in Equity
an increase in Assets and an increase in Liabilities
a decrease in Assets and a decrease in Liabilities
a decrease in Assets and a decrease in Liabilities
ANSWER:
b
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.05–02 – LO: 05–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG – Analytic
DATE CREATED:
10/2/2017 3:56 PM
DATE MODIFIED:
10/16/2017 4:50 PM
243. The following entry was recorded in the books of Brighty Company.
Mar. 31
Cost of Goods Sold
18,000
Inventory
18,000
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Recorded cost of goods sold.
What is the impact of this entry on the accounting equation?
an increase in Assets and an increase in Equity
an increase in Assets and an increase in Liabilities
a decrease in Assets and a decrease in Liabilities
a decrease in Assets and a decrease in Equity
ANSWER:
d
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.05–02 – LO: 05–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG – Analytic
DATE CREATED:
10/2/2017 4:00 PM
DATE MODIFIED:
10/16/2017 4:50 PM
244. The following entry was recorded in the books of Brighty Company.
Oct. 31
Accounts Receivable—Digitec
12,000
Sales
12,000
Invoice No. 7112.
What is the impact of this entry on the accounting equation?
an increase in Assets and an increase in Equity
an increase in Assets and an increase in Liabilities
a decrease in Assets and a decrease in Liabilities
a decrease in Assets and a decrease in Equity
ANSWER:
a
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.05–02 – LO: 05–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG – Analytic
DATE CREATED:
10/2/2017 4:05 PM
DATE MODIFIED:
10/16/2017 4:50 PM
245. The following entry was recorded in the books of Brighty Company.
Nov. 3
Customer Refund Payable
120
Accounts Receivable—Tillet Inc.
120
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Granted customer an allowance.
What is the impact of this entry on the accounting equation?
an increase in Assets and an increase in Equity
an increase in Assets and an increase in Liabilities
a decrease in Assets and a decrease in Liabilities
a decrease in Assets and a decrease in Equity
ANSWER:
c
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.05–02 – LO: 05–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG – Analytic
DATE CREATED:
10/2/2017 4:08 PM
DATE MODIFIED:
10/16/2017 4:50 PM
246. On April 3, Villa Corp. returned merchandise that had a selling price of $1,200 for a cash refund. The merchandise
originally cost $720. What is the effect on the accounting equation of the following entries for this return?
Apr. 3
Customer Refunds Payable
1,200
Cash
1,200
Apr. 3
Inventory
720
Estimated Return Inventory
720
ANSWER:
The first entry reduces assets and liabilities by the amount of the refund. The second
entry increases an asset (Inventory) and decreases an asset (Estimated Return
Inventory)
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Easy
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.05–02 – LO: 05–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.ACBSP.APC.17 – Inventories Reporting
BUSPROG – Analytic
DATE CREATED:
10/2/2017 4:11 PM
DATE MODIFIED:
10/16/2017 4:50 PM
247. Colma Company purchased merchandise on account from Bellville Company, $2,400, terms FOB destination.
Analyze the transaction and determine its effect on the accounting equation.
May 18
Inventory
2,400
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Accounts Payable—Bellville Co.
2,400
ANSWER:
The entry increases assets (Inventory) and increases liabilities (Accounts Payable).
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Easy
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.05–02 – LO: 05–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.ACBSP.APC.17 – Inventories Reporting
BUSPROG – Analytic
DATE CREATED:
10/2/2017 4:20 PM
DATE MODIFIED:
10/16/2017 4:50 PM
248. Stergell Company had sales of $1,500,000 and related cost of goods sold of $920,000 for the year. Stergell estimates
that customers will request refunds for 1.5% of sales and estimates that merchandise costing $12,000 will be returned.
Journalize the adjusting entries on December 31 to record the expected customer returns.
Journal
Date
Description
Post.
Ref.
Debit
Credit
ANSWER:
Dec. 31
Sales
22,500
Customer Refunds Payable
22,500
Dec. 31
Estimated Returns Inventory
12,000
Cost of Goods Sold
12,000
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.05–04 – LO: 05–04
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.07 – Adjusting Entries
ACCT.ACBSP.APC.17 – Inventories Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG – Analytic
DATE CREATED:
10/2/2017 4:47 PM
DATE MODIFIED:
10/16/2017 4:50 PM
249. A physical inventory taken at year end indicated that there was $125,000 on hand. The Estimated Returns Inventory
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is $8,200. Depreciation for the year is $24,500. On December 31, the close of the fiscal year, the balances of selected
accounts appearing in the ledger of Broxton Gallery, an art retailer, are as follows:
Accumulated Depr.—Building
$365,000
Inventory
$115,000
Administrative Expenses
440,000
Notes Payable
100,000
Building
810,000
Purchases
810,000
Retained Earnings
455,000
Purchases Returns and Allowances
2,500
Cash
78,000
Sales
1,700,000
Common Stock
75,000
Sales Tax Payable
4,500
Cost of Goods Sold
775,000
Selling Expenses
160,000
Dividends
15,000
Store Supplies
16,000
Interest Expense
6,000
Prepare the December 31 closing entries for Broxton Gallery.
Date
Description
Debit
Credit
ANSWER:
Dec. 31
Inventory
125,000
Estimated Returns Inventory
8,200
Sales
1,700,000
Purchases Returns and Allowances
2,500
Inventory
115,000
Purchases
810,000
Selling Expenses
160,000
Administrative Expenses
440,000
Depreciation Expense
24,500
Interest Expense
6,000
Retained Earnings
280,200
31
Retained Earnings
15,000
Dividends
15,000
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.05–04 – LO: 05–04