1. Merchandising businesses acquire merchandise for resale to customers. It is the selling of
2. Yes. Gross profit is the excess of (net) sales over cost of merchandise sold. A net loss arises
4. a. 1% discount allowed if paid within 15 days of date of invoice; entire amount of invoice
6. a. A credit memo issued by the seller of merchandise indicates the amount for which the
r
8. Examples of such accounts include the following: Sales, Sales Discounts, Sales Returns and
CHAPTER 5
ACCOUNTING FOR MERCHANDISING BUSINESSES
DISCUSSION QUESTIONS
5-1
CHAPTER 5 Accounting for Merchandising Businesses
PE 5–1A
PE 5–1B
PE 5–2A
PE 5–2B
PE 5–3A
a. Accounts Receivable 41,100
PE 5–3B
a. Accounts Receivable 92,500
PRACTICE EXERCISES
5-2
CHAPTER 5 Accounting for Merchandising Businesses
PE 5–4A
a. $161,400. Purchase of $180,000 less return of $20,000 less the discount of
PE 5–4B
a. $31,680. Purchase of $36,000 less return of $4,000 less the discount of
PE 5–5A
Sundance Co. journal entries:
Cash ($16,800 – $3,800 – $260) 12,740
PE 5–5B
Shore Co. journal entries:
Cash ($112,000 – $2,240 + $1,800) 111,560
5-3
CHAPTER 5 Accounting for Merchandising Businesses
PE 5–6A
Apr. 30 Cost of Merchandise Sold
PE 5–6B
Dec. 31 Cost of Merchandise Sold
PE 5–7A
a. 2014 2013
PE 5–7B
a. 2014 2013
Ratio of net sales to assets 2.4* 2.2**
23,250
13,750
5-4
CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–1
a. $931,000 ($2,450,000 – $1,519,000)
Ex. 5–2
Ex. 5–4
The offer of Supplier Two is lower than the offer of Supplier One. Details are as follows:
Supplier One Supplier Two
List price $100,000 $99,750
Ex. 5–5
(1) Purchased merchandise on account at a cost of $21,000.
EXERCISES
5-5
CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–6
a. Merchandise Inventory 60,000
Accounts Payable 60,000
Ex. 5–7
a. Merchandise Inventory 71,500
Accounts Payable—Sitwell Co. 71,500
5-6
CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–8
a. Cash 45,000
Sales 45,000
Ex. 5–9
It was acceptable to debit Sales for the $55,000. However, using Sales Returns
and Allowances assists management in monitoring the amount of returns so that
quick action can be taken if returns become excessive.
5-7
CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–11
(1) Sold merchandise on account, $42,000.
Ex. 5–12
a. $24,000
Ex. 5–13
a. $49,600 ($52,300 – $2,700)
5-8
CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–14
a. Accounts Receivable—Belarus Co. 64,300
Sales 64,300
5-9
CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–16
Balance Sheet Accounts Income Statement Accounts
100 Assets 400 Revenues
110 Cash 410 Sales
112 Accounts Receivable 411 Sales Returns and
114 Merchandise Inventory Allowances
115 Store Supplies 412 Sales Discounts
116 Office Supplies 500 Expenses
117 Prepaid Insurance 510 Cost of Merchandise Sold
120 Land 520 Sales Salaries Expense
123 Store Equipment 521 Advertising Expense
124 Accumulated Depreciation— 522 Depreciation Expense—
Store Equipment Store Equipment
125 Office Equipment 523 Store Supplies Expense
126 Accumulated Depreciation— 524 Delivery Expense
Office Equipment 529 Miscellaneous Selling
200 Liabilities Expense
210 Accounts Payable 530 Office Salaries Expense
211 Salaries Payable 531 Rent Expense
212 Notes Payable 532 Depreciation Expense—
300 Stockholders’ Equity Office Equipment
310 Capital Stock 533 Insurance Expense
311 Retained Earnings 534 Office Supplies Expense
312 Dividends 539 Miscellaneous
313 Income Summary Administrative Expense
600 Other Expense
610 Interest Expense
Note: The order and number of some of the accounts within subclassifications is
somewhat arbitrary, as in accounts 115–117, accounts 520–524, and accounts
530–534. For example, in a new business, the order of magnitude expense
account balances often cannot be determined in advance. The magnitude may
also vary from period to period.
5-10
CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–17
a. At the time of sale
Ex. 5–18
a. Accounts Receivable 23,730
Ex. 5–19
a. debit
5-11
CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–20
Ex. 5–21
Ex. 5–22
5-12
CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–23
a.
Revenue from sales:
Sales $2,850,000
FOLDAWAY FURNISHINGS COMPANY
Income Statement
For the Year Ended February 28, 2014
5-13
CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–24
1. Sales returns and allowances and sales discounts should be deducted from
A correct income statement would be as follows:
Revenue from sales:
Sales $9,132,000
CURBSTONE COMPANY
Income Statement
For the Year Ended August 31, 2014
5-14
CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–25
Revenues:
Net sales $3,750,000
Ex. 5–26
Cost of Merchandise Sold 14,450
CUMMERBUND COMPANY
Income Statement
For the Year Ended June 30, 2014
5-15
CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–28
2014
Feb. 28 Sales 2,850,000
Ex. 5–29
2014
Oct. 31 Sales 1,375,000
Closing Entries
Closing Entries
5-16
CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–30
a. Year 2: 1.68 {$67,997 ÷ [($40,125 + $40,877) ÷ 2]}
Ex. 5–31
Appendix Ex. 5–32
5-17
CHAPTER 5 Accounting for Merchandising Businesses
Appendix Ex. 5–33
a. Cost of merchandise sold:
Merchandise inventory, May 1, 2013 $ 380,000
Appendix Ex. 5–34
Cost of merchandise sold:
Merchandise inventory, November 1 $ 28,000
5-18
CHAPTER 5 Accounting for Merchandising Businesses
Appendix Ex. 5–35
Cost of merchandise sold:
Merchandise inventory, July 1 $ 190,850
Appendix Ex. 5–36
A correct cost of merchandise sold section is as follows:
Cost of merchandise sold:
Merchandise inventory, June 1, 2013 $ 91,300
5-19
CHAPTER 5 Accounting for Merchandising Businesses
Appendix Ex. 5–37
(a) credit
Appendix Ex. 5–38
Jan. 2 Purchases 18,200
Accounts Payable 18,200
5-20