EXERCISES
Exercise 4-1 (30 minutes)
Note: The original missing numbers are blocked.
(a) (b) (c) (d) (e)
Sales……………….…..….. $62,000 $43,500 $46,000 $79,000 $25,600
Cost of goods sold
Merch. inv. (beg.)…..... 8,000 17,050 7,500 8,000 4,560
Total cost of merch.
purchases……........... 38,000 1,950 43,750 32,000 6,600
Merch. inv. (end.)…..... (11 ,950 ) (3 ,000 ) (9 ,000 ) (6 ,600 ) (4,160)
Explanations:
a. Find merchandise inventory (ending) by subtracting cost of goods sold from goods
available for sale. Find gross profit as the difference between the sales and cost of
goods sold. Find net income as the gross profit less the expenses.
b. Find total cost of merchandise purchases by finding the number that makes the total
equal the cost of goods sold. Find gross profit from sales less cost of goods sold.
Exercise 4-2 (10 minutes)
Operating cycle of a merchandiser with credit sales follows (chronological):
2 (a) inventory made available for sale
5 (b) cash collections from customers
Exercise 4-3 (20 minutes)
In today’s competitive world, organizations must concentrate on meeting their
customers’ needs and avoiding dissatisfaction. If these needs are not met and
dissatisfaction grows, the customers will deal with other companies or
or fickle customers.
An important early step in controlling returns is to have information about
their dollar amount. In addition, managers can set goals for reducing the
dollar amount of sales returns. Both objectives can be helped by having the
While a company’s sales return record is important for managers, it is also
valuable information for external decision makers. This information can help
external users identify organizations focusing on customer satisfaction and
Exercise 4-4 (30 minutes)
Apr. 2 Merchandise Inventory……………………………….. 4,600
Accounts Payable—Lyon..….…….…….…... 4,600
Purchased merchandise on credit.
3 Merchandise Inventory……………….…………….... 300
Cash……………………………………..…………….. 300
Paid shipping charges on purchased
merchandise.
18 Merchandise Inventory ……………….……………... 8,500
Accounts Payable—Frist…………….…….…. 8,500
Purchased merchandise on credit.
21 Accounts Payable—Frist…….…….…….….……… 1,100
Merchandise Inventory ……….……….……... 1,100
Received an allowance on purchase.
28 Accounts Payable—Frist…….…….…….….……… 7,400
Exercise 4-5 (30 minutes)
May 5 Accounts Receivable …………………….…………... 21,000
Sales …………….……………………….…..………. 21,000
Sold merchandise on credit (1,500 x $14).
7 Merchandise Inventory ……………….……………... 2,000
Cost of Goods Sold ………………..……….….. 2,000
Returned merchandise to inventory (200 x $10).
b.
May 8 Sales Returns and Allowances……………….…... 600
Accounts Receivable…………..……….……... 600
Granted allowance for damaged merchandise.
Exercise 4-6 (15 minutes)
May 5 Merchandise Inventory………….…….…….….….. 21,000
Accounts Payable……………….….…….……. 21,000
Purchased merchandise on credit (1,500 x $14).
a.
b.
May 8 Accounts Payable…………………….……………….. 600
Merchandise Inventory………………..……… 600
To record allowance for damaged merchandise.
c.
May 15 Accounts Payable…………………..…………………. 680
Exercise 4-7 (30 minutes)
1. BUYER- Santa Fe Company
a) Credit Purchase
Merchandise Inventory…….….……….…….….…. 24,000
b) Cash Payment
2. SELLER – Mesa Company
a) Credit Sale
Accounts Receivable…………………………..……. 24,000
Sales……………..………………………..…..….…. 24,000
Sold merchandise on account.
b) Cash Collection
Cash……………………………………..…………….……. 23,280
Sales Discounts………………………………….…….. 720
Accounts Receivable…………………..……... 24,000
Collected account receivable.
3. Amount borrowed to pay with discount…………….…….. $ 23,280
Annual rate of interest …………….…………………..…………. x 8%
Interest per year………………………………….……………….…. $1,862.40
Exercise 4-8 (25 minutes)
1. Entries for Sydney Company (BUYER):
11 Merchandise Inventory ………….….….…….…… 345
Cash………………………………..….……..…….. 345
Paid shipping charges on purchased
merchandise.
12 Accounts Payable..……………….….….……….…. 1,400
Merchandise Inventory …………..……….… 1,400
Returned unacceptable merchandise.
2. Entries for Troy Corporation (SELLER):
May 11 Accounts Receivable……………..….…….….…… 40,000
Sales……………..………………………..………… 40,000
Sold merchandise on account.
13 Merchandise Inventory ………….….….…….…… 800
Cost of Goods Sold…………………………… 800
Returned goods to inventory.
21 Cash..………………………..………………..…………… 37,442
Exercise 4-9 (30 minutes)
Merchandise Inventory
Balance, Dec. 31, 2014…........... 25,000 Purchase discounts received……….……..……..……………..……..1,700
Invoice cost of purchases........ 192,500 Purchase returns and allow………..……..……..……..……….……...4,000
Cost of Goods Sold
Cost of sales transactions……..
196,000
Returns by customers and
Exercise 4-10 (20 minutes)
Perpetual
1)
Nov. 1 Merchandise Inventory……………………………….. 1,500
Accounts Payable..……………………………… 1,500
To record merchandise purchases on credit.
2)
previously paid for with discount already taken.
4)
Nov. 10 Merchandise Inventory……………………………….. 90
Cash……………………………………..…………….. 90
To record payment of freight charges.
5)
Nov. 13 Accounts Receivable……………..…………………... 1,600
Sales……………..……………………….…..………. 1,600
To record sale of merchandise on credit.……..…
6)
Nov. 16 Sales Returns and Allowances………………..….. 300
Merchandise Inventory……………………………….. 130
Cost of Goods Sold………………………..……. 130
To record return of merchandise to inventory.
Exercise 4-11 (25 minutes)
Adjusting entries
Dec. 31 Sales Salaries Expense………………..……………. 1,700
Dec. 31 Selling Expenses………………………..….…….…… 3,000
Prepaid Selling Expenses….…….……....... 3,000
To record expired prepaid selling expenses.
Closing entries
Dec. 31 Sales …………….………………….……………………. 529,000
Income Summary……………..………………. 529,000
To close temporary accounts with
credit balances.
Dec. 31 Income Summary……………..…..….…….….…… 444,750
Dec. 31 Income Summary……………..…..….…….….…… 84,250
Retained Earnings……………….…….…….. 84,250
To close Income Summary account.
Dec. 31 Retained Earnings………………..…………………. 33,000