Exercises
For all exercises, assume the perpetual inventory system is used unless stated otherwise.
Round all numbers to the nearest whole dollar unless stated otherwise.
E5-18 Using accounting vocabulary
Learning Objectives 1, 2, 3
Match the accounting terms with the corresponding definitions.
1. Credit Terms
2. FOB Destination
3. Invoice
4. Cost of Goods Sold
5. Purchase Allowance
6. FOB Shipping Point
7. Wholesaler
8. Purchase Discount
9. Retailer
a. The cost of the merchandise inventory that the business has sold to
customers.
b. An amount granted to the purchaser as an incentive to keep goods that are
not “as ordered.”
c. A type of merchandiser that buys merchandise either from a manufacturer
or a wholesaler and then sells those goods to consumers.
d. A situation in which the buyer takes ownership (title) at the delivery
destination point.
e. A type of merchandiser that buys goods from manufacturers and then sells
them to retailers.
f. A discount that businesses offer to purchasers as an incentive for early
payment.
g. A situation in which the buyer takes title to the goods after the goods leave
the seller’s place of business.
h. The terms of purchase or sale as stated on the invoice.
i. A seller’s request for cash from the purchaser.
SOLUTION
E5-19 Journalizing purchase transactions from an invoice
Learning Objective 2
3. Oct. 1 Cash $769.35
Kingston Tires received the following invoice from a supplier (Fields Distribution, Inc.):
Requirements
1. Journalize the transaction required by Kingston Tires on September 23, 2018. Do not round
numbers to the nearest whole dollar. Assume tires are purchased on account.
2. Journalize the return on Kingston’s books on September 28, 2018, of the D39–X4 Radials,
which were ordered by mistake. Do not round numbers to the nearest whole dollar.
3. Journalize the payment on October 1, 2018, to Fields Distribution, Inc. Do not round
numbers to the nearest whole dollar.
SOLUTION
Requirements 1, 2, and 3
E5-20 Journalizing purchase transactions
Learning Objective 2
July 24 Merch. Inv. $64 CR
Howie Jewelers had the following purchase transactions. Journalize all necessary transactions.
Explanations are not required.
Jun. 20 Purchased inventory of $5,100 on account from Sanders Diamonds, a jewelry importer.
Terms were 2/15, n/45, FOB shipping point.
20 Paid freight charges, $400.
Jul. 4 Returned $600 of inventory to Sanders.
14 Paid Sanders Diamonds, less return.
16 Purchased inventory of $3,500 on account from Southboro Diamonds, a jewelry importer.
Terms were 2/10, n/EOM, FOB destination.
18 Received a $300 allowance from Southboro Diamonds for damaged but usable goods.
24 Paid Southboro Diamonds, less allowance and discount.
SOLUTION
E5-21 Journalizing sales transactions
Learning Objective 3
Journalize the following sales transactions for Antique Mall. Explanations are not required. The
company estimates sales returns at the end of each month.
Jan. 4 Sold $16,000 of antiques on account, credit terms are n/30. Cost of goods is $8,000.
8 Received a $300 sales return on damaged goods from the customer. Cost of goods damaged
is $150.
13 Antique Mall received payment from the customer on the amount due from Jan. 4, less the
return.
20 Sold $4,900 of antiques on account, credit terms are 1/10, n/45, FOB destination. Cost of
goods is $2,450.
20 Antique Mall paid $70 on freight out.
29 Received payment from the customer on the amount due from Jan. 20, less the discount.
SOLUTION
E5-22 Journalizing purchase and sales transactions
Learning Objectives 2, 3
Journalize the following transactions for Soul Art Gift Shop. Explanations are not required.
Feb. 3 Purchased $3,300 of merchandise inventory on account under terms 3/10, n/EOM and FOB
shipping point.
7 Returned $900 of defective merchandise purchased on February 3.
9 Paid freight bill of $400 on February 3 purchase.
10 Sold merchandise inventory on account for $4,700. Payment terms were 2/15, n/30. These
goods cost the company $2,350.
12 Paid amount owed on credit purchase of February 3, less the return and the discount.
28 Received cash from February 10 customer in full settlement of their debt.
SOLUTION
Use the following information to answer Exercises E5-23 through E5-25.
The adjusted trial balance of Quality Office Systems at March 31, 2018, follows:
E5-23 Journalizing closing entries
Learning Objective 4
2. Ending Retained Earnings Balance $47,200
Requirements
1. Journalize the required closing entries at March 31, 2018.
2. Set up T-accounts for Income Summary; Retained Earnings; and Dividends. Post the closing
entries to the T-accounts, and calculate their ending balances.
3. How much was Quality Office’s net income or net loss?
SOLUTION
Requirement 1
E5-24 Preparing a single-step income statement
Learning Objective 5
Net Income $83,750
Prepare Quality Office’s single-step income statement for the year ended March 31, 2018.
SOLUTION
E5-25 Preparing a multi-step income statement
Learning Objective 5
Gross Profit $128,150
Prepare Quality Office’s multi-step income statement for the year ended March 31, 2018.
SOLUTION
E5-26 Journalizing adjusting entries including estimating sales returns
Learning Objectives 3, 4
Emerson St. Book Shop’s unadjusted Merchandise Inventory at June 30, 2018 was $5,200. The
cost associated with the physical count of inventory on hand on June 30, 2018, was $4,900. In
addition, Emerson St. Book Shop estimated approximately $1,000 of merchandise sold will be
returned with a cost of $400.
Requirements
1. Journalize the adjustment for inventory shrinkage.
2. Journalize the adjustment for estimated sales returns.
SOLUTION
Requirement 1
E5-27 Computing the gross profit percentage
Learning Objective 6
Crazy Cookies earned net sales revenue of $66,000,000 in 2018. Cost of goods sold was
$39,600,000, and net income reached $7,000,000, the company’s highest ever. Compute the
company’s gross profit percentage for 2018.
SOLUTION
E5A-28 Journalizing multiple performance obligations and sales transactions
Learning Objectives 3, 7 Appendix 5A
Journalize the following sales transactions for Morris Supply. Explanations are not required.
Mar. 1 Morris Supply sold merchandise inventory for $3,000. The cost of the inventory was
$1,800. The customer paid cash. Morris Supply was running a promotion and the customer
received a $150 award at the time of sale that can be used at a future date on any Morris
Supply merchandise.
3 Sold $6,000 of supplies on account. Credit terms are 2/10, n/45, FOB destination. Cost of
goods is $3,600.
10 Received payment from the customer on the amount due from March 3, less the discount.
Apr. 15 The customer used the $150 award when purchasing merchandise inventory for $200, the
cost of the inventory was $120. The customer paid cash.
SOLUTION