Answer
168. Neutron uses a periodic inventory system. Prepare general journal entries to record the
following transactions for Neutron:
June10 Neutron purchased merchandise on credit from Proton for $9,000, terms 2/10, n/30,
FOB destination. Transportation costs of $350 were paid by Proton.
12 Neutron returned $600 of merchandise from the June 10 purchase.
19 Neutron paid Proton for the June 10 purchase.
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169. Steve’s Skateboards uses the periodic inventory system and had the following sales
transactions during April:
April 2 Sold merchandise to Happy Hobby Shop on credit for $4,800, terms 1/15,
n/60. The items sold had a cost of $2,700.
April 4 Happy Hobby Shop returned merchandise that had a selling price of $200. The
cost of the merchandise returned was $110.
April 13 Happy Hobby Shop paid for the merchandise sold on April 2, taking any
appropriate discount earned.
Prepare the journal entries that Steve’s Skateboards must make to record these transactions.
170. Maia’s Bike Shop uses the periodic inventory system and had the following transactions
during the month of May:
May 3 Sold merchandise to a customer on credit for $600, terms 2/10, n/30. The cost of the
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merchandise sold was $350.
May 4 Sold merchandise to a customer for cash of $425. The cost of the merchandise was
$250.
May 6 Sold merchandise to a customer on credit for $1,300, terms 2/10, n/30. The cost of the
merchandise sold was $750.
May 8 The customer from May 3 returned merchandise with a selling price of $100. The
cost of the merchandise returned was $55.
May 15 The customer from May 6 paid the full amount due, less any appropriate discounts
earned.
May 31 The customer from May 3 paid the full amount due, less any appropriate discounts
earned.
Prepare the required journal entries that Maia’s Bike Shop must make to record these
transactions.
171. Sam’s Wholesale shows the following account balances in its ledger on June 30, its fiscal
year-end. Sam’s Wholesale uses the perpetual inventory system.
Merchandise Inventory $60,000
Sales 940,000
Sales discounts 16,000
Sales returns and allowances 8,000
Cost of goods sold 456,000
A physical count of its June 30 year-end inventory discloses that the cost of the merchandise
inventory still available is $57,160. Prepare the entry to record any inventory shrinkage.
172. Prepare journal entries to record the following merchandising transactions of Dean
Company, which applies the perpetual inventory system. Dean Company offers all of its
credit customers credit terms of 2/10, n/30.
May 1 Purchased merchandise from Swift Company for $7,800 under credit terms of 1/10,
n/30, FOB shipping point, invoice dated May 1.
May 2 Purchased merchandise from Arrow Company for $10,600 under credit terms 2/05,
n/20, FOB destination.
May 3 Sold merchandise to Bee Company for $5,600, FOB shipping point, invoice dated May
4. The merchandise had cost $3,000.
May 4 Paid $300 cash for the freight charges on the May 1 purchase of merchandise.
May 5 Received an $800 credit memorandum from Swift Company for the return of part of
the merchandise purchased on May 1.
May 6 Paid Arrow Company the balance due within the discount period.
May 8 Sold merchandise to Nat Company for $3,300, FOB shipping point, invoice dated May
8. The merchandise had a cost of $1,500.
May 11 Paid Swift Company the balance due within the discount period.
May 13 Received the balance due from Bee Company within the discount period.
May 14 Issued a credit $300 credit memorandum to Nat Company for an allowance on
defective merchandise.
May 17 Received the balance due from Nat Company within the discount period.
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173. From the adjusted trial balance given below for the Mirror Company, prepare a multiple-
step income statement in good form. Salaries expense and depreciation expense on the
building are equally divided between selling activities and the general and administrative
activities.
Mirror Company
Adjusted Trial Balance
December 31
Debit Credit
Cash $19,500
Accounts receivable 27,000
Merchandise inventory 38,000
Office supplies 1,200
Store equipment 80,000
Accumulated depreciation – store equipment $ 25,000
Building 260,000
Accumulated depreciation – building 121,600
Accounts payable 28,500
Salaries payable 10,000
S. Image, Capital 169,900
S. Image, Withdrawals 45,000
Sales 450,000
Sales discounts 8,000
Sales returns and allowances 24,500
Cost of goods sold 210,000
Salaries expense 38,000
Depreciation expense – store equipment 16,000
Depreciation expense – building 24,000
Advertising expense 12,300
Office supplies expense 3,500
Gain on disposal of store equipment 3,000
Interest expense 1,000
Totals $808,000 $808,000
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174. Shock Company purchased merchandise from Mee Company with an invoice price of
$300,000 and credit terms of 2/10, n/30. The merchandise had cost Mee Company $200,000.
Shock Company paid within the discount period. Assume that both buyer and seller use a
perpetual inventory system.
1. Prepare entries that the buyer should record for (a) the purchase and (b) the cash payment.
2. Prepare entries that the seller should record for (a) the sale and (b) the cash collection.
3. Assume that the buyer borrowed enough cash to pay the balance on the last day of the
discount period at an annual interest rate of 9% and paid it back on the last day of the credit
period. Compute how much the buyer saved by following this strategy. (Assume a 365-day
year and round dollar amounts to the nearest cent.)
175. Prepare journal entries to record the following merchandise transactions of Geo
Company, which applies the perpetual inventory system.
May 1 Purchased merchandise from Amok Company for $11,200 under credit terms of
2/15, n/45, FOB destination, and invoice dated May 1.
3 Sold merchandise to Lawton 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 Amok Company.
7 Lawton returned merchandise from the May 3 sale that had cost Geo $625 and had
been sold for $1,000. The merchandise was restored to inventory.
13 Received the balance due from Lawton less the return.
14 Paid the amount due Amok Company.
Fill in the Blank Questions
176. A ___________ is an intermediary that buys products from manufacturers and sells to
retailers.
177. A merchandising company’s ___________ begins with the purchase of merchandise and
ends with the collection of cash from merchandise sales.
178. _____________________ refers to products that a company owns and intends to sell.
179. A ___________ inventory system updates the accounting record for inventory only at the
end of a period.
180. The __________________ inventory system continually updates accounting records for
merchandise transactions for the amounts of inventory available for sale and inventory sold.
181. Beginning inventory plus the net cost of purchases is the _____________________.
182. A period’s ___________________ becomes the next period’s beginning inventory.
183. The acid-test ratio reflects the ___________ of a company.
184. The gross margin ratio equals net sales less ___________ divided by net sales.
185. The amounts and timing of payment from a buyer to a seller are the _______________.
186. A _______________________ is a document the buyer issues to inform the seller of a
debit made to the seller’s account in the buyer’s records.
187. 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.
188. 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.
189. _______________ refer to merchandise that customers return to the seller after a sale.
190. ___________________ refer to 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.
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191. A seller usually prepares a ____________________ to confirm a buyer’s return or
allowance, and informs the buyer of the seller’s credit to the buyer’s Account Receivable on
the seller’s books.
192. Sales discounts can benefit a seller by decreasing the delay in receiving cash and
___________.
193. Inventory shrinkage can be computed by comparing the ___________ of inventory with
recorded quantities and amounts.
194. ___________ expenses are those expenses that support a company’s overall operations
and include expenses related to accounting, human resource management, and financial
management.
195. A _____________________ income statement format shows detailed computations of
net sales and other costs and expenses, and reports subtotals for various classes of items.
196. A ______________________ income statement includes cost of goods sold as another
expense and shows only one subtotal for total expenses.
197. _____________ are non-operating activities that include interest, dividend, and rent
revenues, and gains from asset disposals.
198. _____________ are non-operating activities that include interest expense, losses from
asset disposals, and casualty losses.
199. When a company has no reportable nonoperating activities, its income from operations is
reported as ___________________ .
200. Under the ___________ system, each purchase, purchase return and allowance, purchase
discount, and transportation-in transaction is recorded in a separate temporary account.