CHAPTER 5
Accounting for Merchandising Operations
ASSIGNMENT CLASSIFICATION TABLE
Learning Objectives
Questions
Brief
Exercises
Do It!
Exercises
A
Problems
*1. Describe merchandising
operations and inventory
systems.
2, 3, 4
1, 2
1
1
*2. Record purchases under a
perpetual inventory system.
5, 6, 7, 8
3, 5
2
2, 3, 4, 11
1A, 2A, 4A
*3. Record sales under a perpetual
inventory system.
9, 10, 11
3, 4
3
3, 4, 5, 11
1A, 2A, 4A
*4. Apply the steps in the
1, 12, 13,
6, 7
4
6, 7, 8
3A, 4A, 5A
*5. Compare a multiple-step with a
single-step income statement.
15, 16, 17,
18, 19, 20
8, 9, 10
5
6, 9, 10, 12,
13, 14
2A, 3A, 5A,
6A, 7A
*6. Prepare a worksheet for
a merchandising company
21
11
15, 16
5A
*7. Record purchases and sales
22, 23
12, 13, 14,
17, 18, 19,
6A, 7A, 8A
ASSIGNMENT CHARACTERISTICS TABLE
Problem
Number
Description
Difficulty
Level
Time
Allotted (min.)
1A
Journalize purchase and sales transactions under
a perpetual inventory system.
Simple
20–30
2A
Journalize, post, and prepare a partial income statement.
Simple
30–40
3A
Prepare financial statements and adjusting and
closing entries.
Moderate
40–50
4A
Journalize, post, and prepare a trial balance.
Simple
30–40
Determine cost of goods sold and gross profit under
40–50
Calculate missing amounts and assess profitability.
20–30
Journalize, post, and prepare trial balance and partial
30–40
WEYGANDT ACCOUNTING PRINCIPLES 12E
CHAPTER 5
ACCOUNTING FOR MERCHANDISING OPERATIONS
Number
LO
BT
Difficulty
Time (min.)
BE1
1
AP
Simple
4–6
BE2
1
AP
Simple
4–6
BE3
2, 3
AP
Simple
2–4
BE4
3
AP
Simple
6–8
BE5
2
AP
Simple
6–8
BE6
4
AP
Simple
1–2
BE7
4
AP
Simple
2–4
BE8
5
AP
Simple
2–4
BE9
5
C
Simple
4–6
BE10
5
AP
Simple
4–6
*BE11
6
K
Simple
2–4
*BE12
7
AP
Simple
4–6
*BE13
7
AP
Simple
3–5
*BE14
7
AP
Simple
6–8
*BE15
7
AP
Simple
4–6
*BE16
7
K
Simple
2–4
DI1
1
C
Simple
2–4
DI2
2
AP
Simple
2–4
DI3
3
AP
Simple
4–6
DI4
4
AP
Simple
4–6
DI5
5
AP
Simple
10–12
EX1
1
C
Simple
3–5
EX2
2
AP
Simple
8–10
EX3
2, 3
AP
Simple
8–10
EX4
2, 3
AP
Simple
8–10
EX5
3
AP
Simple
8–10
EX6
4, 5
AP
Simple
6–8
EX7
4
AP
Simple
6–8
EX8
4
AP
Simple
8–10
EX9
5
AP
Simple
8–10
EX10
5
AP
Simple
8–10
ACCOUNTING FOR MERCHANDISING OPERATIONS (Continued)
Number
LO
BT
Difficulty
Time (min.)
EX13
5
AN
Simple
6–8
EX14
5
AN
Moderate
8–10
*EX15
6
AP
Simple
2–4
*EX16
6
AP
Simple
8–10
*EX17
7
AP
Simple
6–8
*EX18
7
AP
Simple
8–10
*EX19
7
AN
Moderate
10–12
*EX20
7
AP
Simple
8–10
*EX21
7
AP
Simple
8–10
*EX22
7
AP
Simple
6–8
P1A
2, 3
AP
Simple
20–30
P2A
2, 3, 5
AP
Simple
30–40
P3A
4, 5
AN
Moderate
40–50
P4A
2–4
AP
Simple
30–40
P5A
4–6
AP
Moderate
50–60
P6A
5, 7
AP
Moderate
40–50
P7A
5, 7
AN
Moderate
20–30
P8A
7
AP
Simple
30–40
BYP1
5
AN, E
Simple
10–15
BYP2
5
AN, E
Simple
15–20
BYP3
5
AN, E
Simple
15–20
BYP4
AP
Simple
10–15
BYP5
5
Moderate
20–30
BYP6
3
Simple
10–15
BYP7
2
Simple
10–15
BYP8
5–10
BYP9
AP
Moderate
10–15
BLOOM’ S TAXONOMY TABLE
Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End–of-Chapter Exercises and Problems
Learning Objective
Knowledge
Comprehension
Application
Analysis
Synthesis
Evaluation
1. Describe merchandising
operations and inventory
systems.
Q5-2
Q5-3
Q5-4
DI5-1
E5-1
BE5-1
BE5-2
2. Record purchases under a
perpetual inventory system.
Q5-5
Q5-6
Q5-7
Q5-8
BE5-3
BE5-5
DI5-2
E5-2
E5-3
E5-4
P5–1A
P5–2A
P5–4A
E5–11
4. Apply the steps in the
accounting cycle to a
merchandising company.
Q5-1
Q5–12
Q5–14
Q5–13
BE5-6
BE5-7
DI5-4
E5-6
E5-7
E5-8
P5–4A
P5–5A
P5–3A
5. Compare a multiple-step with
a single-step income
statement.
Q5–18
Q5–19
BE5-9
Q5–17
BE5-8
BE5-10
DI5-5
E5-6
E5-9
E5–10
E5–12
P5–2A
P5–5A
P5–6A
Q5–15
Q5–16
Q5–20
E5–13
E5–14
P5–3A
P5–7A
Broadening Your Perspective
Communication
Real-World Focus
FASB Codification
Financial Reporting
Comparative Analysis
Decision Making Across
the Organization
Decision Making
Across the
Organization
All About You
Comparative Analysis
Financial Reporting
Decision Making Across
the Organization
Ethics Case
3. Record sales under a
Q5–11
E5-4
Q5-9
ANSWERS TO QUESTIONS
1. (a) Disagree. The steps in the accounting cycle are the same for both a merchandising company
and a service company.
(b) The measurement of income is conceptually the same. In both types of companies, net
income (or loss) results from the matching of expenses with revenues.
2. The normal operating cycle for a merchandising company is likely to be longer than in a service
company because inventory must first be purchased and sold, and then the receivables must be
collected.
3. The components of revenues and expenses differ as follows:
Merchandising
Service
Revenues
Expenses
Sales Revenue
Cost of Goods Sold and Operating
Fees, Rents, etc.
Operating (only)
7. Credit terms of 2/10, n/30 mean that a 2% cash discount may be taken if payment is made within
10 days of the invoice date; otherwise, the invoice price, less any returns, is due 30 days from the
invoice date.
10. (a) The primary source documents are: (1) cash sales—cash register tapes and (2) credit sales—
sales invoice.
Questions Chapter 5 (Continued)
(b) The entries are:
Debit
Credit
Cash sales—
Cash ……………………………………………………..
Sales Revenue ………………………………..
Cost of Goods Sold …………………………………
Inventory …………………………………………
XX
XX
XX
XX
Credit sales—
Accounts Receivable ……………………………….
Inventory …………………………………………
XX
XX
11. July 19 Cash ($800 – $16) …………………………..…………………………. 784
Sales Discounts ($800 X 2%) ………………………………………… 16
Accounts Receivable ($900 – $100) ………………………… 800
12. The perpetual inventory records for merchandise inventory may be incorrect due to a variety of
causes such as recording errors, theft, or waste.
13. Two closing entries are required:
14. Of the merchandising accounts, only Inventory will appear in the post-closing trial balance.
15. Sales revenues ………………………………………………………………………………………… $105,000
Cost of goods sold ……………………………………………………………………………………. 70,000
Gross profit ……………………………………………………………………………………………… $ 35,000
Questions Chapter 5 (Continued)
*18. (a) The operating activities part of the income statement has three sections: sales revenues,
cost of goods sold, and operating expenses.
*19. The single-step income statement differs from the multiple-step income statement in that: (1) all data
are classified into two categories: revenues and expenses, and (2) only one step, subtracting
total expenses from total revenues, is required in determining net income (or net loss).
20. Apple’s gross profit rate for 2013 was 37.6% [($170,910 – $106,606) ÷ $170,910]. Its gross
profit rate in 2012 was 43.9% [($156,508 – $87,846) ÷ $156,508] so the rate decreased from
2012 to 2013.
*21. The columns are:
*22.
Accounts
Added/Deducted
Purchase Returns and Allowances
Deducted
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 5-1
(a) Cost of goods available for sale = $80,000 + $100,000 = $180,000.
Ending inventory = $180,000 – $120,000 = $60,000.
BRIEF EXERCISE 5-2
(a) Cost of goods sold = $47,000 ($75,000 – $28,000).
Operating expenses = $18,200 ($28,000 – $19,800).
BRIEF EXERCISE 5-3
Cha Company
Inventory …………………………..……………………….. 780
Accounts Payable ………………………………… 780
BRIEF EXERCISE 5-4
(a) Accounts Receivable …………………………………… 900,000
Sales Revenue ……………………………………… 900,000
Cost of Goods Sold …………………………………….. 590,000
Inventory ……………………………………………… 590,000
BRIEF EXERCISE 5-5
(a) Inventory ……………………………………………………. 900,000
Accounts Payable ………………………………… 900,000
(b) Accounts Payable ……………………………………….. 90,000
Inventory ……………………………………………… 90,000
BRIEF EXERCISE 5-6
BRIEF EXERCISE 5-7
Sales Revenue …………………………..………………………. 195,000
Income Summary ………………………………………… 195,000
BRIEF EXERCISE 5-8
NELSON COMPANY
Income Statement (Partial)
For the Month Ended October 31, 2017
Sales revenues
Sales revenue ($280,000 + $95,000) ………………. $375,000
BRIEF EXERCISE 5-9
As the name suggests, numerous steps are required in determining net
income in a multiple-step income statement. In contrast, only one step is
required to compute net income in a single-step income statement. A multiple–
(1) Multiple-Step Income Statement
Item
Section
a.
Gain on sale of equipment
Other revenues and gains
BRIEF EXERCISE 5-9 (Continued)
(2) Single-Step Income Statement
Item
Section
a.
b.
Gain on sale of equipment
Interest expense
Revenues
Expenses
BRIEF EXERCISE 5-10
(a) Net sales = $510,000 – $15,000 = $495,000.
*BRIEF EXERCISE 5-11
(a) Cash: Trial balance debit column; Adjusted trial balance debit column;
Balance sheet debit column.
*BRIEF EXERCISE 5-12
Purchases ……………………………………………………………. $450,000
Less: Purchase returns and allowances ……………….. $13,000
*BRIEF EXERCISE 5-13
Net sales ……………………………………………………………… $730,000
Beginning inventory ……………………………………………… $ 60,000
*BRIEF EXERCISE 5-14
(a) Purchases ……………………………………………………. 900,000
Accounts Payable ………………………………….. 900,000
*BRIEF EXERCISE 5-15
Inventory (ending) ………………………………………………… 30,000
Sales Revenue ……………………………………………………… 180,000
*BRIEF EXERCISE 5-16
(a) Cash: Trial balance debit column; Adjusted trial balance debit
column; Balance sheet debit column.
(b) Beginning inventory: Trial balance debit column; Adjusted trial
balance debit column; Income statement debit column.
SOLUTIONS FOR DO IT! REVIEW EXERCISES
DO IT! 5-1
1. True.
2. False. Under a perpetual inventory system, a company determines the
cost of goods sold at each time a sale occurs.
3. False. Both service and merchandising companies are likely to use
accounts receivable.
4. True.
DO IT! 5-2
Oct. 5 Inventory ………………………………………………………. 4,800
Accounts Payable ……………………………………. 4,800
(To record goods purchased on account)
DO IT! 5-3
Oct. 5 Accounts Receivable …………………………………….. 4,800
Sales Revenue …………………………………………. 4,800
(To record credit sales)
Oct. 8 Sales Returns and Allowances ………………………. 650
Accounts Receivable ……………………………….. 650
(To record credit granted for receipt
DO IT! 5-4
Dec. 31 Sales Revenue ………………………………………………. 156,000
Income Summary …………………………………………… 128,400
Cost of Goods Sold ………………………………….. 92,400
DO IT! 5-5
Account
Financial Statement
Classification
Accounts Payable
Balance sheet
Current liabilities
Accounts Receivable
Balance sheet
Current assets
Cash
Balance sheet
Current assets
Casualty Loss from
Income statement
Other expenses and
Cost of Goods Sold
Income statement
Cost of goods sold
Property, plant, and
Accumulated Depreciation—
Balance sheet
Property, plant, and
Freight-Out
Income statement
Operating expenses
Insurance Expense
Income statement
Operating expenses
Interest Payable
Balance sheet
Current liabilities
Inventory
Balance sheet
Current assets
Land
Balance sheet
Property, plant, and
Owner’s Capital
Owner’s equity
statement
Beginning balance
Owner’s Drawings
Owner’s equity
statement
Deduction section
Property Taxes Payable
Balance sheet
Current liabilities
Income statement
Operating expenses
Salaries and Wages Payable
Balance sheet
Current liabilities
Sales Revenue
Income statement
Sales revenues
Unearned Rent Revenue
Balance sheet
Current liability
Utilities Expense
Income statement
Operating expenses
SOLUTIONS TO EXERCISES
EXERCISE 5-1
1. True.
2. False. For a merchandiser, sales less cost of goods sold is called
gross profit.
EXERCISE 5-2
(a) (1) April 5 Inventory …………………………………… 23,000
Accounts Payable ……………….. 23,000
(b) May 4 Accounts Payable ……………………………… 20,000
Cash…………………………………………… 20,000
EXERCISE 5-3
Sept. 6 Inventory (90 X $22) …………………………………. 1,980
Cash ………………………………………………… 1,980
14 Sales Returns and Allowances ………………… 31
Accounts Receivable ……………………….. 31
Inventory ……………………………………………….. 23
Cost of Goods Sold ………………………….. 23
EXERCISE 5-4
(a) June 10 Inventory …………………………………………. 8,000
Accounts Payable ……………………… 8,000
11 Inventory …………………………………………. 400
Cash …………………………………………. 400
EXERCISE 5-4 (Continued)
(b) June 10 Accounts Receivable ……………………….. 8,000
Sales Revenue ………………………….. 8,000
Cost of Goods Sold …………………………. 4,800
Inventory ………………………………….. 4,800
EXERCISE 5-5
(a) 1. Dec. 3 Accounts Receivable …………………. 570,000
Sales Revenue ……………………. 570,000
2. Dec. 8 Sales Returns and Allowances …… 20,000
Accounts Receivable ………….. 20,000
(b) Cash ……………………………………………………………….. 550,000