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6-61
114.
If cost of goods sold is $360,000 and the gross profit rate is 40%, what is the gross profit?
Essay Questions
115.
Accounting terminology
Listed below are nine technical accounting terms introduced in this chapter:
Gross profit
Gross profit rate
General ledger
Cost of goods sold
Physical inventory
Subsidiary ledger
Perpetual inventory system
Periodic inventory system
Inventory shrinkage
Each of the following statements may (or may not) describe one of these technical terms.
In the space provided below each statement, indicate the accounting term described, or
answer "None" if the statement does not correctly describe any of the terms.
______ a. An approach to accounting for inventories and the cost of goods sold used
primarily in small businesses with manual accounting systems.
______ b. A reason why perpetual inventory records may not be entirely accurate.
______ c. The difference between the revenue earned by selling merchandise and the cost
of goods sold.
______ d. Gross profit divided by average total stockholders' equity.
______ e. An accounting procedure used in both perpetual and periodic inventory systems.
In a perpetual system, this procedure brings to light the amount of inventory shrinkage. In
a periodic system, it is the basis for computing the cost of goods sold.
______ f. An accounting record showing the individual items comprising the balance of a
general ledger account.
______ g. The accounting record in which transactions initially are recorded.
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116.
Subsidiary ledgers
Listed below are several merchandising transactions of Siegel's Garden Center, a garden
supply store.
(a) Purchased merchandise from Bayview Wholesale on account.
(b) Sold merchandise for cash.
(c) Sold merchandise on account to Dom's Landscaping Co.
(d) Paid the account payable to Bayview Wholesale.
(e) Collected the account receivable from Dom's Landscaping Co.
Among the accounting records maintained by Siegel's are subsidiary ledgers for inventory,
accounts receivable, and accounts payable.
For each of the five transactions, you are to indicate any subsidiary ledger (or ledgers) to
which the transaction would be posted. Use the code:
Inv = Inventory subsidiary ledger
AR = Accounts receivable subsidiary ledger
AP = Accounts payable subsidiary ledger
Also indicate whether each posting causes the balance in the subsidiary ledger account to
increase or decrease. Organize your answer in tabular form as illustrated below. The
answer for transaction a is provided as an example.
117.
Gross profit
The table below contains information from a recent annual report of Molloy, Inc. (Dollar
amounts are stated in millions.) Fill in the missing amounts.
118.
Subsidiary ledgers
Explain the nature of subsidiary ledgers, and give two specific examples. For each of these
examples, explain (1) the unit of organization within this ledger, and (2) the usefulness of
this ledger in business operations.
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119.
Effects of transactions upon the accounting equation
Listed below are selected transactions of Simon's, a retail store which uses a perpetual
inventory system:
(a) Purchased merchandise on account.
(b) Made an entry to recognize the revenue from a sale of merchandise on account.
(Ignore the cost of goods sold.)
(c) Recognized the cost of goods sold relating to the sale in Transaction b.
(d) Collected in cash the account receivable from the customer in Transaction b.
(e) Following the taking of a physical inventory at year-end, made an adjusting entry to
record a normal amount of inventory shrinkage.
Indicate the effects of each of these transactions upon the elements of the company's
financial statements. Organize your answer in tabular form, using the column headings
shown below. (Notice that the cost of goods sold is shown separately from all other
expenses.) Use the code letters I for increase, D for decrease, and NE for no effect. The
answer for Transaction a is provided as an example.
120.
Perpetual inventory system: basic entries
Renato Company uses a perpetual inventory system. A partial chart of accounts is shown
below, followed by a series of merchandising transactions. Indicate the accounts that
should be debited and credited in recording each transaction. (Ignore sales taxes.)
121.
Perpetual inventory system: transactions and closing entries
Danny's Wholesale Company uses a perpetual inventory system. A partial chart of
accounts is shown below, followed by a series of merchandising transactions. Indicate the
accounts that should be debited and credited in recording each transaction. (Ignore sales
taxes.)
122.
A customer purchased merchandise for $400 which cost the seller $200. The customer
was dissatisfied with some of the goods and thus returned $100 worth and received a
cash refund.
(a) What journal entries should the seller make when the merchandise is sold and at the
time of the return? Assume that the seller uses a perpetual inventory system.
(b) If the seller uses a periodic inventory system, what entries would be made?
