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230) Prepare journal entries to record the following merchandise transactions of Martinez
Excavation Equipment, which applies the perpetual inventory system and the gross method of
recording invoices.
May 1 Purchased merchandise from Kona Company for $12,700 under credit terms of 2/15,
n/45, FOB destination, and invoice dated May 1.
3 Sold merchandise to Walton for $8,000 under credit terms of 1/10, n/30, FOB
destination, invoice date May 3. The merchandise had cost $5,000.
5 Paid $350 cash for shipping charges related to the May 3 sale.
6 Returned $2,000 of the merchandise purchased on May 1 to Kona Company.
7 Walton returned merchandise from the May 3 sale that had cost Martinez $625 and
had been sold for $1,000. The merchandise was restored to inventory.
13 Received the balance due from Walton less the return.
14 Paid the amount due Kona Company.
231) In its first month of business, Clausen Corporation reports sales of $1,750,000 and cost of
goods sold of $950,000. Clausen estimates that current and future returns and allowances will
equal 4% of those sales. Prepare the October 31 adjusting entries necessary to record the revenue
side and cost side estimates for returns and allowances.
232) Stevenson Corporation reports unadjusted first-year sales of $400,000 and cost of goods
sold of $240,000. The company expects future returns and allowances equal to 3% of sales and
3% of cost of sales. Prepare the adjusting entries necessary to record the revenue side and cost
side estimates for returns and allowances.
233) Martin Corporation allows customers to return merchandise within 60 days of purchase. At
year-end, Martin estimates that sales of $20,000, with a cost of $14,000 will be returned in the
upcoming year. The unadjusted balance in Inventory Returns Estimated is a debit of $4,000, and
the unadjusted balance in Sales Refund Payable is a credit of $2,500. Prepare the adjusting
entries necessary to record the revenue side and cost side estimates for returns and allowances.
234) Tahoe Ski Company uses the perpetual inventory system and the net method of accounting
for purchases. The company had the following transactions during January:
January 6: Purchased $4,000 of inventory. The seller’s credit terms are 2/10, n/30.
January 8: Returned $200 worth of defective units and received full credit.
January 15: Paid the amount due, less the returned items.
Prepare journal entries to record each of the preceding transactions.
235) Barbara’s Boats uses the periodic inventory system and the net method of accounting for
purchases. The company had the following transactions during January:
January 6: Purchased $10,000 of inventory. The seller’s credit terms are 2/10, n/30.
January 31: Due to an oversight, the invoice was not paid within the discount period. Full
payment was made on January 31.
Prepare journal entries to record each of the preceding transactions.
236) A ________ buys products from manufacturers and sells to retailers.
237) A ________company’s operating cycle begins with the purchase of merchandise and ends
with the collection of cash from merchandise sales.
238) Products that a company owns and intends to sell are called ________.
239) A ________ inventory system updates the accounting record for inventory only at the end
of an accounting period.
240) The ________ inventory system updates accounting records for each purchase and each
sale of inventory.
241) Beginning inventory plus the net cost of purchases is the ________.
242) A period’s beginning inventory is equal to the prior period’s ________.
243) The liquidity of a company can be measured using the current ratio and the ________,
which only includes the most liquid current assets in its calculation.
244) The gross margin ratio equals net sales less ________ divided by net sales.
245) ________ are the amounts and timing of payment from a buyer to a seller.
246) A ________ is a price reduction granted by the seller to a buyer of defective or
unacceptable merchandise.
247) FOB ________ means the buyer accepts ownership when the goods depart the seller’s place
of business. The buyer is responsible for paying shipping costs and bears the risk of damage or
loss when goods are in transit.
248) FOB ________ means ownership of goods transfers to the buyer when the goods arrive at
the buyer’s place of business. The seller is responsible for paying shipping charges and bears the
risk of damage or loss in transit.
249) Merchandise that customers return to the seller after a sale is referred to as________.
250) Reductions in the selling price of merchandise sold to customers, often involving damaged
or defective merchandise that a customer is willing to purchase with a decrease in the selling
price is referred to as________.
251) The seller might offer a(n) ________to a buyer that is not satisfied with the goods received.
252) ________ can benefit a seller by decreasing the delay in receiving cash and reducing future
collection efforts.
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253) Inventory shrinkage can be computed by comparing the ________ of inventory with
recorded quantities and amounts.
254) ________ expenses are those costs that support a company’s overall operations and include
expenses related to accounting, human resources, and finance.
255) A ________ income statement format shows net sales and reports subtotals for various
types of items such as gross profit, income for operations, and net income.
256) A ________ income statement lists cost of goods sold as another expense and shows only
one subtotal for total expenses.
257) Non-operating activities that include interest, dividends and rent revenues, and gains from
asset disposals are called ________.
258) Non-operating activities that include interest expense, losses from asset disposals, and
casualty losses are reported as ________.
259) When a company has no reportable non-operating activities, its income from operations is
reported as ________.
260) Under the ________ inventory accounting system, each purchase, purchase return and
allowance, purchase discount, and transportation-in transaction is recorded in a separate
temporary account.