DQ1.
DQ2.
DQ3.
DQ4.
DQ7.
You would want the terms to be FOB destination because the loss of merchandise would
can buy more dollars. Therefore, you would want the eventual payment to be made in
euros.
Because the exchange rate for the dollar is declining as it relates to the euro, the euros
Discussion Questions
verify the inventory as shown in the accounting records.
goods sold on the income statement.
Under the periodic inventory system, a physical inventory is needed to determine the cost
A company must choose an inventory system that is complete and neutral, such as using
CHAPTER 6—Solutions
ACCOUNTING FOR MERCHANDISING OPERATIONS
Neither measure is better than the other, since both measure different aspects of profit-
nues. Net income measures whether a business has been operating successfully.
ability. Income from operations measures the income from a company’s ongoing opera-
tions before considering issues of financing (interest expense) and nonoperating reve-
of goods sold. Under the perpetual inventory system, a physical inventory is required to
either the perpetual inventory system or the periodic inventory system. Further, merchan-
dise inventory is classified as a current asset on the balance sheet and is part of cost of
6-1
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1.
2.
3.
6.
7.
Net sales $4,800
$4,800
1,680
Cost of goods sold
Net sales
Both systems
Income Statement
For the Year Ended May 31, 2014
SE3. Multistep Income Statement
Revenues:
Short Exercises
SE1. Characteristics of Inventory Systems
Perpetual inventory system
Periodic inventory system
Perpetual inventory system
Income Statement
For the Year Ended May 31, 2014
Periodic inventory system
SE2. Single-Step Income Statement
6-2
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=
8/10 970 8/03 105
1,150 8/07 180
List price
Less 20 percent trade discount
8/07
Merchandise value:
$4,800Dealer price
$5,054
$6,000
$3,000
SE5. Sales and Sales Returns
Net cost of machine
1,200
180 1,150
Merchandise Inventory
8/02
Cash Accounts Payable
8/02
Freight-In
SE4. Terms of Sale
–
$600
$2,400
SE6. Purchases of Merchandise: Perpetual Inventory System
*
6-3
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8/10 970 105
*
**
Cost of goods sold
Merchandise inventory, September 30, 2014
Purchases
SE8. Cost of Goods Sold: Periodic Inventory System
Cost of goods sold
Less purchases returns and allowances
Net purchases
$282,900
$272,550
10,350
$273,700
180 8/03
8/02
$ 37,950
Purchases: $282,900
SE7. Purchases of Merchandise: Periodic Inventory System
Accounts Payable Freight-InCash
8/07 1,150
The balance of Cash is a credit because there is no data about the beginning balance
and only one entry has been posted to the credit side of the account.
$1,150 – $180 = $970
*
6-4
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1,785 8/05 231 8/04 2,520
—
40
1.
2.
3.
SE11. Identification of Management Issues
a
c
a
*$2,520 – $735 = $1,785
SE10. Operating Cycle
SE9. Sales of Merchandise: Periodic Inventory System
Cash
9/03
Sales
Freight-Out
Bal.
Days to sell inventory
6-5
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1. 3.
1.
$405,000
3,000
2. $405,000
220,000
$ 3,000
1,000
b
d
Exercises: Set A
Revenues:
Interest income
E1A. Concept Identification
Net sales
E3A. Preparation of Income Statements
Excess of other expenses over other revenues
Interest income
Other revenues and expenses:
Net sales
Cost of goods sold
6-6
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$1,197,132
777,080
$1,500
450
—
List price
Less 30 percent trade discount
Shipping cost
E5A. Terms of Sale
E4A. Multistep Income Statement
For the Year Ended December 31, 2014
Income Statement
to operate efficiently. Also, its current operations are evaluated separately from financing
separately the company’s ability to sell its products at a satisfactory price and its ability
The multistep income statement lists the gross margin from sales and separates income
Nomar Parra Company
Net sales
Cost of goods sold
6-7
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2 2,000
6 250
11 1,750
14 2,250
31 2,250
Purchased merchandise on credit from
Green Company, terms 2/10, n/30, FOB
destination, invoice dated July 12
The total amount paid to Green Company (credits to the Cash account):
Accounts Payable
E6A. Purchases Involving Discounts: Perpetual Inventory System
Merchandise Inventory
July
destination, invoice dated July 1
Returned some merchandise to Green
Merchandise Inventory
Accounts Payable
Company for full credit
Purchased merchandise on credit from
Green Company, terms 2/10, n/30, FOB
Accounts Payable
Paid amount owed Green Company for
purchase of July 14
6-8
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1 500
3 200
11 800
31 800
shipping point
The total amount received from Brook Company (debits to the Cash account):
Sold merchandise on credit to Brook
Company, terms 2/10, n/30, FOB
shipping point
Cash
Dec. Accounts Receivable
E7A. Sales Involving Discounts: Periodic Inventory System
Sales Returns and Allowances
Accounts Receivable
Collected amount due from Brook
Company for the sale of December 11
Sold merchandise on credit to Brook
Company, terms 2/10, n/30, FOB
6-9
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