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Chapter 4
Accounting for Merchandising
Operations
QUESTIONS
1. Merchandising companies report Merchandise Inventory on the balance sheet,
2. Additional accounts of a merchandising company likely include Merchandise
3. A company can have a net loss if its expenses (absent cost of goods sold) are
greater than its gross profit from sales of merchandise.
4. A cash discount can be offered to encourage customers to promptly pay. This
5. For a perpetual inventory system, inventory shrinkage is determined by taking a
6. Cash discounts are granted in return for early payment and reduce the amount paid
below the negotiated price. Cash discounts are recorded in the accounting records
7. Sales discount is a term used by a seller to describe a cash discount granted to a
customer. Purchase discount is a term used by a purchaser to describe a cash
discount received from a seller. (It is a matter of perspective: seller versus buyer.)
8. A manager is concerned about the quantity of its purchase returns because the
9. The sender (maker) of a debit memorandum records a debit in an account of the
recipient; and the recipient records a credit in an account maintained for the sender.
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
10. The single-step income statement format presents cost of goods sold and expenses
in one list, totals the list, and subtracts the total from net sales in one step. The
12. Google titles its cost of goods sold account as “Cost of revenues.”
13. Samsung titles its cost of goods sold account “Cost of sales.”
14. Samsung reports a separate gross margin (profit) figure on its consolidated income
QUICK STUDIES
Quick Study 4-1 (10 minutes)
1. G. Merchandise inventory 5. H. Purchases discount
Quick Study 4-2 (5 minutes)
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Quick Study 4-3 (15 minutes)
a. (i) Computation of goods available for sale
Beginning inventory ……………………………………………. $5,000
Plus: Net purchases ……………………………………………. 3,900
Goods available for sale ……………………………………… $8,900
b. Computation of net income
Kleiner Merchandising Company
Net sales …………………………………………………………….. $9,500
Less: Cost of goods sold (see ii) …………………………. 7,200
Quick Study 4-4 (15 minutes)
Payment Computations
a. $ 4,900 = $ 5,000 – ($ 5,000 x 2%) = $ 5,000 x 98%
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
Quick Study 4-5 (15 minutes)
Nov. 5 Merchandise Inventory ……………………………………… 6,000
Accounts Payable ……………………………………… 6,000
Quick Study 4-6 (10 minutes)
a)
Aug. 1 Merchandise Inventory …………………………..………….. 60,000
Quick Study 4-7 (10 minutes)
a)
Sep. 15 Merchandise Inventory ………………………………………. 35,000
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
Quick Study 4-8 (15 minutes)
Apr. 1 Accounts Receivable ………………………………………… 3,000
Sales …………………………………………………………. 3,000
Record sale of goods.
Apr. 1 Cost of Goods Sold …………………………………………… 1,800
Quick Study 4-9 (10 minutes)
July 31 Cost of Goods Sold …………………………………………… 1,900
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
Quick Study 4-10 (10 minutes)
July 31 Sales ………………………………………………………………… 160,200
Income Summary ………………………………………. 160,200
Close temporary accounts with credit balances.
Quick Study 4-11 (10 minutes)
1. a Multiple-step income statement
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Quick Study 4-12 (20 minutes)
Save-the-Earth Co.
Income Statement
For Year Ended December 31
Sales ……………………………………………………………………. $20,000
Less: Sales discounts ………………………………………….. $750
Sales returns and allowances …………………….. 250 1,000
Net sales ……………………………………………………………… 19,000
General and administrative expenses
Office supplies expense ……………………………………. 500
Rent expense—Office space …………………………….. 1,500
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Quick Study 4-13 (20 minutes)
Clear Water Co.
Balance Sheet
December 31
Assets
Current assets
Cash ………………………………………………………. $ 8,000
Accounts receivable ………………………………. 2,000
Liabilities
Current liabilities
Accounts payable …………………………………… $ 5,000
Equity
Common stock ………………………………………… 10,000
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
Quick Study 4-14 (10 minutes)
Acid-test ratio = ($1,490 + $2,800) / ($5,750 + $850) = 0.65
Quick Study 4-15 (10 minutes)
Carrier
Lennox
Trane
York
$150,000
$550,000
$38,700
$255,700
(5,000)
(17,500)
(600)
(4,800)
$ 45,250
$196,911
$ 8,547
$123,500
Quick Study 4-16A (5 minutes)
a. Periodic inventory system
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
Quick Study 4-17A (10 minutes) PERIODIC & GROSS
Nov. 5 Purchases ………………………………………………………….. 6,000
Accounts Payable ……………………………………….. 6,000
Quick Study 4-18A (10 minutes) PERIODIC & GROSS
Apr. 1 Accounts Receivable …………………………………………. 3,000
Sales ………………………………………………………….. 3,000
Record sale of goods.
Quick Study 4-19B (10 minutes)
a.
June 30 Sales Discounts …………………………………………………. 60
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
Quick Study 4-20B (10 minutes)
a.
June 30 Sales Returns and Allowances …………………………... 1,000
Quick Study 4-21C (10 minutes) NET & PERPETUAL
Nov. 5 Merchandise Inventory ………………………………………. 5,880
Accounts Payable ………………………………………. 5,880
Record credit purchase. 600 units x $10 x (100%-2%)
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
Quick Study 4-22C (10 minutes) NET & PERPETUAL
Apr. 1 Accounts Receivable ………………………………. 3,000
Sales ……………………………………………….. 3,000
Record sale of goods.
Apr. 1 Cost of Goods Sold …………………………………. 1,800
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
Quick Study 4-23 (15 minutes)
Oct. 1 Accounts Receivable ………………………………………… 1,500
Sales …………………………………………………………. 1,500
Record sale of goods.
Oct. 1 Cost of Goods Sold …………………………………………… 900
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EXERCISES
Exercise 4-1 (30 minutes)
Note: The original missing numbers are blocked and shaded.
(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.
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.
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
Exercise 4-2 (10 minutes)
Operating cycle of a merchandiser with credit sales follows (chronological):
2 (a) prepare merchandise for sale
Exercise 4-3 (30 minutes)
Apr. 2 Merchandise Inventory ………………………………. 4,600
Accounts Payable—Lyon …………………….. 4,600
Purchased merchandise on credit.
3 Merchandise Inventory ………………………………. 300
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Exercise 4-4 (30 minutes)
SELLER—Allied
May 3 Merchandise Inventory ………………………………. 20,000
Cash …………………………………………………… 20,000
Purchased goods (2,000 x $10).
May 7 Sales Returns and Allowances …………………… 1,750
Accounts Receivable …………………………... 1,750
Accepted returns (125 x $14).
7 Merchandise Inventory ………………………………. 1,250
Cost of Goods Sold …………………………….. 1,250
Returned goods to inventory (125 x $10).
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
Exercise 4-5 (15 minutes)
BUYER—Macy
May 3 No entry for buyer.
May 5 Merchandise Inventory ……………………………… 21,000
Accounts Payable ………………………………. 21,000
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
Exercise 4-6 (30 minutes)
1. BUYER– Santa Fe
a) Credit Purchase
Merchandise Inventory ……………………………… 24,000
Accounts Payable ………………………………. 24,000
2. SELLER – Mesa
a) Credit Sale
Accounts Receivable ………………………………… 24,000
Sales ………………………………………………….. 24,000
Sold merchandise on account.
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 4
Exercise 4-7 (25 minutes)
1. Entries for Sydney (BUYER):
May 11 Merchandise Inventory ……………………………. 40,000
Accounts Payable ……………………………… 40,000
Purchased goods.
2. Entries for Troy (SELLER):
May 11 Accounts Receivable ……………………………….. 40,000
Sales …………………………………………………. 40,000
Sold goods.
11 Cost of Goods Sold ………………………………….. 30,000
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Exercise 4-8 (30 minutes)
Merchandise Inventory
Balance, beginning-year ………….
25,000
Discounts received on merch …………………………..
1,700
Cost of merch. purchases ……….
Returns to and allow. on merch …………………………..
4,000
Cost of Goods Sold
Cost of merch. sold ………………..
196,000
Returns from customers and