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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
Total cost of merch.
purchases................. 38,000 1,950 43,750 32,000 6,600
Net income (loss)........ $17 ,950 $16 ,850 $ (8 ,400) $42 ,000 $12,600
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.
e. Find merchandise inventory (ending) by subtracting cost of goods sold from goods
available for sale. Find gross profit from sales less cost of goods sold. Find net
income as gross profit less expenses.
5-291
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
valuable information for external decision makers. This information can help
5-292
Exercise 5-4 (30 minutes)
Apr. 2 Merchandise Inventory...................................... 4,600
Accounts Payable—Lyon.......................... 4,600
Purchased merchandise on credit.
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.
5-293
Exercise 5-5 (30 minutes)
May 5 Accounts Receivable ........................................ 21,000
Sales ........................................................... 21,000
Sold merchandise on credit (1,500 x $14).
b.
May 8 Sales Returns and Allowances......................... 600
Accounts Receivable................................. 600
Granted allowance for damaged merchandise.
5-294
Exercise 5-6 (15 minutes)
May 5 Merchandise Inventory.................................... 21,000
Accounts Payable..................................... 21,000
Purchased merchandise on credit (1,500 x $14).
c.
May 15 Accounts Payable............................................. 680
Merchandise Inventory............................. 680
To record allowance for mis-colored goods and
return of mis-colored merchandise
$120 + (40 x $14).
5-295
Exercise 5-7 (30 minutes)
1. BUYER- Santa Fe Company
a) Credit Purchase
Merchandise Inventory.................................... 24,000
Accounts Payable..................................... 24,000
Purchased merchandise on credit.
2. SELLER – Mesa Company
a) Credit Sale
Accounts Receivable....................................... 24,000
Sales........................................................... 24,000
Sold merchandise on account.
Collected account receivable.
3. Amount borrowed to pay with discount........................ $ 23,280
Annual rate of interest .................................................... x 8%
Interest per year............................................................... $1,862.40
Interest per day ($1,862.40 / 365 days).......................... $5.10*
5-296
Exercise 5-8 (25 minutes)
1. Entries for Sydney Company (BUYER):
May 11 Merchandise Inventory .................................. 40,000
20 Accounts Payable........................................... 38,600
Merchandise Inventory*.......................... 1,158
Cash.......................................................... 37,442
Paid balance within the 3% discount period.
*($38,600 x .03).
2. Entries for Troy Corporation (SELLER):
May 11 Accounts Receivable...................................... 40,000
Sales.......................................................... 40,000
Sold merchandise on account.
21 Cash.................................................................. 37,442
Sales Discounts............................................... 1,158
Accounts Receivable............................... 38,600
Collected account receivable.
5-297
Exercise 5-9 (30 minutes)
Merchandise Inventory
Balance, Dec. 31, 2014.............. 25,000 Purchase discounts received................................................................................1,700
Balance, Dec. 31, 2015 20,000
Cost of Goods Sold
Cost of sales transactions........
196,000
Returns by customers and
restored to inventory...........................................................................................2,100
5-298
Exercise 5-10 (20 minutes)
Perpetual
1)
Nov. 1 Merchandise Inventory...................................... 1,500
Accounts Payable...................................... 1,500
To record merchandise purchases on credit.
4)
Nov. 10 Merchandise Inventory...................................... 90
Cash............................................................. 90
To record payment of freight charges.
Merchandise Inventory...................................... 130
Cost of Goods Sold.................................... 130
To record return of merchandise to inventory.
Instructor note: This second entry changes if the goods returned are defective. In this
case the returned inventory is recorded at its estimated value, not its cost. To illustrate, if
the goods (costing $130) returned are defective and estimated to be worth, say, $50, the
following entry is made: Dr. Merchandise Inventory for $50, Dr. Loss from Defective
Merchandise for $80, and Cr. Cost of Goods Sold for $130.
5-299
Exercise 5-11 (25 minutes)
Adjusting entries
Dec. 31 Sales Salaries Expense.................................... 1,700
Salaries Payable........................................ 1,700
To record accrued salaries.
($30,000 - $28,450).
Closing entries
Dec. 31 Sales ............................................................... 529,000
Income Summary.................................... 529,000
To close temporary accounts with
credit balances.
Dec. 31 Income Summary........................................... 444,750
Sales Returns and Allowances.............. 17,500
Sales Discounts...................................... 5,000
balances.
Dec. 31 Income Summary........................................... 84,250
K. Emiko, Capital.................................... 84,250
To close Income Summary account.
5-300
