EXERCISES
Exercise 5-1 (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
Explanations:
a. Find merchandise inventory (ending) by subtracting cost of goods sold from goods
e. Find merchandise inventory (ending) by subtracting cost of goods sold from goods
5-1
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Exercise 5-2 (10 minutes)
Operating cycle of a merchandiser with credit sales follows (chronological):
2 (a) inventory made available for sale
Exercise 5-3 (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
An important early step in controlling returns is to have information about
their dollar amount. In addition, managers can set goals for reducing the
While a company’s sales return record is important for managers, it is also
Exercise 5-4 (30 minutes)
5-2
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Apr. 2 Merchandise Inventory………………………………. 4,600
Accounts Payable—Lyon…………………….. 4,600
Purchased merchandise on credit.
Exercise 5-5 (30 minutes)
May 5 Accounts Receivable ………………………………… 21,000
a.
5-3
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May 7 Sales Returns and Allowances ………………….. 2,800
Accounts Receivable …………………………. 2,800
Accepted a return from a customer (200 x $14).
b.
c.
May 15 Sales Returns and Allowances…………………… 680
Accounts Receivable………………………….. 680
Exercise 5-6 (15 minutes)
May 5 Merchandise Inventory…………………………….. 21,000
Accounts Payable……………………………… 21,000
Purchased merchandise on credit (1,500 x $14).
a.
May 7 Accounts Payable……………………………………. 2,800
b.
c.
May 15 Accounts Payable……………………………………. 680
Merchandise Inventory………………………. 680
5-4
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$120 + (40 x $14).
Exercise 5-7 (30 minutes)
1. BUYER- Santa Fe Company
a) Credit Purchase
2. SELLER – Mesa Company
a) Credit Sale
Accounts Receivable……………………………….. 24,000
Sales………………………………………………… 24,000
3. Amount borrowed to pay with discount………………….. $ 23,280
Annual rate of interest ………………………………………….. x 8%
5-5
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Exercise 5-8 (25 minutes)
1. Entries for Sydney Company (BUYER):
May 11 Merchandise Inventory …………………………… 40,000
Accounts Payable…………………………….. 40,000
2. Entries for Troy Corporation (SELLER):
May 11 Accounts Receivable………………………………. 40,000
Sales……………………………………………….. 40,000
Sold merchandise on account.
11 Cost of Goods Sold…………………………………. 30,000
Merchandise Inventory……………………… 30,000
5-6
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Exercise 5-9 (30 minutes)
Merchandise Inventory
Balance, Dec. 31, 2014………….. 25,000 Purchase discounts received………………………………………………………………………..1,700
Cost of Goods Sold
Cost of sales transactions……..
196,000
Returns by customers and
restored to inventory………………………………………………………………………………….2,100
5-7
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Exercise 5-10 (20 minutes)
Perpetual
1)
Nov. 1 Merchandise Inventory………………………………. 1,500
2)
Nov. 5 Accounts Payable……………………………………… 1,500
3)
Nov. 7 Cash………………………………………………………… 196
4)
Nov. 10 Merchandise Inventory………………………………. 90
5)
Nov. 13 Accounts Receivable…………………………………. 1,600
6)
Nov. 16 Sales Returns and Allowances…………………… 300
Accounts Receivable………………………….. 300
Instructor note: This second entry changes if the goods returned are defective. In this
5-8
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Exercise 5-11 (25 minutes)
Adjusting entries
Dec. 31 Sales Salaries Expense…………………………….. 1,700
Dec. 31 Selling Expenses……………………………………… 3,000
Dec. 31 Cost of Goods Sold………………………………….. 1,550
Closing entries
Dec. 31 Sales ……………………………………………………. 529,000
Dec. 31 Income Summary…………………………………… 444,750
Sales Returns and Allowances…………. 17,500
Dec. 31 Income Summary…………………………………… 84,250
K. Emiko, Capital…………………………….. 84,250
To close Income Summary account.
Dec. 31 K. Emiko, Capital……………………………………. 33,000
K. Emiko, Withdrawals…………………….. 33,000
To close the withdrawals account.
Exercise 5-12 (10 minutes)
5-9
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Multiple-Step Income Statement — Sales Related Information Only
Sales (gross)…………………………………………………….. $200,000
Exercise 5-13 (20 minutes)
The employee’s oversight in omitting these goods from the physical count
would cause the cost of the physical count of ending inventory to be
As a result of this error:
Return on assets would be understated (numerator impact outweighs
the denominator impact).
Exercise 5-14 (20 minutes)
See the solution explanation in Exercise 5-13. As a result of this error:
Gross margin (gross profit/sales) would be understated because the
Profit margin (net income/sales) would be understated because the net
Exercise 5-15 (15 minutes)
5-10
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Case X Case Y Case Z
Current ratio computation
Acid-test ratio computation
Cash…………………………………. $2,000 $ 110 $1,000
5-11
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