Accounting Chapter 5 Homework Cash 112 Accounts Receivable 114 Merchandise Inventory

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subject Authors Carl S. Warren, James M. Reeve, Jonathan Duchac

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1. Merchandising businesses acquire merchandise for resale to customers. It is the selling of
2. Yes. Gross profit is the excess of sales over cost of merchandise sold. A net loss arises when
4. a. 1% discount allowed if paid within 15 days of date of invoice; entire amount of invoice
5. Sales to customers who use MasterCard or VISA cards are recorded as cash sales.
6. a. A credit memo issued by the seller of merchandise indicates the amount for which the
b
uyer’s account is to be credited (credit to Accounts Receivable) and the reason for the
p
r
8. Sales, Cost of Merchandise Sold, Merchandise Inventory.
10. Loss from Merchandise Inventory Shrinkage would be debited.
CHAPTER 5
ACCOUNTING FOR MERCHANDISING BUSINESSES
DISCUSSION QUESTIONS
5-1
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CHAPTER 5 Accounting for Merchandising Businesses
PE 5–1B
a. $126,000 ($18,300 + $295,700 – $188,000)
PE 5–2A
PE 5–2B
PE 5–3A
a. Accounts Receivable [$72,500 – ($72,500 × 2%)] 71,050
PE 5–3B
a. Accounts Receivable [$92,500 – ($92,500 × 1%)] 91,575
PRACTICE EXERCISES
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CHAPTER 5 Accounting for Merchandising Businesses
PE 5–4A
a. $75,250. Purchase of $89,100 [$90,000 – ($90,000 × 1%)] less return of
PE 5–4B
a. $31,680. Purchase of $35,640 [$36,000 – ($36,000 × 1%)] less return of
PE 5–5A
Sather Co. journal entries:
Accounts Receivable—Boone Co. 31,164
Sales 31,164
[$31,800 – ($31,800 × 2%)]
PE 5–5B
Shore Co. journal entries:
Accounts Receivable—Blue Star Co. 109,760
Sales 109,760
[$112,000 – ($112,000 × 2%)]
5-3
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CHAPTER 5 Accounting for Merchandising Businesses
PE 5–5B (Continued)
Blue Star Co. journal entries:
Merchandise Inventory 111,560
Accounts Payable—Shore Co. 111,560
PE 5–6A
Nov. 30 Cost of Merchandise Sold 11,600
PE 5–6B
Dec. 31 Cost of Merchandise Sold 23,250
PE 5–7A
a. 2016 2015
PE 5–7B
a. 2016 2015
5-4
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CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–1
a. $1,856,300 ($4,885,000 – $3,028,700)
b. 38% ($1,856,300 ÷ $4,885,000)
Ex. 5–2
$38,132 million ($50,705 million – $12,573 million)
Ex. 5–3
a. $22,572. Purchase of $28,611 [$28,900 – ($28,900 × 1%)] less return of
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
Less discount 1,000 1,995
Ex. 5–5
(2) Paid freight, $300.
(4) Paid the balance due within the discount period: debited Accounts Payable,
$16,660, and credited Cash, $16,660.
EXERCISES
5-5
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CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–6
a. Merchandise Inventory [$75,000 – ($75,000 × 2%)] 73,500
Accounts Payable 73,500
Merchandise Inventory 7,425
d. Merchandise Inventory 6,000
Accounts Payable—Atlas Co. 6,000
e. Cash 1,425
Accounts Payable—Atlas Co. 1,425
5-6
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CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–8
a. Cash 30,000
Sales 30,000
d. Cash 72,000
Sales 72,000
Cost of Merchandise Sold 43,200
Merchandise Inventory 43,200
e. Credit Card Expense 8,800
5-7
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CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–10
a. $27,440 [$28,000 – ($28,000 × 2%)]
b. Customers Refunds Payable 27,440
Cash 27,440
Ex. 5–11
(2) Recorded the cost of the merchandise sold and reduced the merchandise
inventory account, $25,200.
(4) Updated the merchandise inventory account for the cost of the merchandise
returned, $1,200.
(5) Received the balance due of $39,200.
Ex. 5–12
Ex. 5–13
a. $22,500 ($27,000 – $4,500)
b. $15,763. Purchase of $18,228 [$18,600 – ($18,600 × 2%)] less return of
$2,940 [$3,000 – ($3,000 × 2%)] plus freight of $475.
5-8
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CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–14
a. Accounts Receivable—Balboa Co. 254,500
Sales 254,500
Cost of Merchandise Sold 152,700
Merchandise Inventory 152,700
5-9
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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 500 Expenses
114 Merchandise Inventory 510 Cost of Merchandise Sold
115 Store Supplies 520 Sales Salaries 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 of expense
5-10
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CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–17
a. At the time of sale
b. $36,000
Ex. 5–18
a. Accounts Receivable 65,940
Sales 62,800
Sales Tax Payable ($62,800 × 5%) 3,140
Ex. 5–19
a. debit
5-11
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CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–20
a. Gross profit: $10,165,000 ($25,565,000 – $15,400,000)
Ex. 5–21
a. Selling expense, (1), (2), (7), (8)
Ex. 5–22
a. $379,900 ($463,400 – $83,500)
5-12
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CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–23
a.
Sales $6,410,000
Cost of merchandise sold 3,800,000
Gross profit $2,610,000
PRESTIGE FURNISHINGS COMPANY
Income Statement
For the Year Ended October 31, 2016
5-13
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CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–24
2. Deducting the total expenses from gross profit would yield income from
operations (or operating income).
4. The final amount on the income statement should be labeled net income, not
gross profit.
A correct income statement would be as follows:
Sales $8,595,000
Cost of merchandise sold 6,110,000
Gross profit $2,485,000
CURBSTONE COMPANY
Income Statement
For the Year Ended August 31, 2016
5-14
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CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–25
Revenues:
Sales $9,332,500
Rent revenue 60,000
Total revenues $9,392,500
Expenses:
Ex. 5–27
(b) Advertising Expense
CUSTOM WIRE & TUBING COMPANY
Income Statement
For the Year Ended April 30, 2016
5-15
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CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–28
2016
Oct. 31 Sales 6,410,000
Income Summary 6,410,000
31 Income Summary 5,065,000
Ex. 5–29
2016
July 31 Sales 1,437,000
Income Summary 1,437,000
Closing Entries
Closing Entries
5-16
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CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–30
a. Year 2: 1.75 {$70,395 ÷ [($40,518 + $40,125) ÷ 2]}
Year 1: 1.68 {$67,997 ÷ [($40,125 + $40,877) ÷ 2]}
Ex. 5–31
a. 3.85 {$90,374 ÷ [($23,476 + $23,505) ÷ 2]}
b. Although Kroger and Tiffany are both retail stores, Tiffany sells jewelry using a
much longer operating cycle than Kroger uses selling groceries. Thus, Kroger is
5-17
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CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–32
(a) credit
(b) debit
Ex. 5–33
Jan. 2 Purchases 18,200
Accounts Payable 18,200
5 Freight In 190
Cash 190
6 Accounts Payable 2,750
5-18
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CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–35
a. Cost of merchandise sold:
Merchandise inventory, May 1, 2015 $ 380,000
Purchases $3,800,000
Less: Purchases returns and
allowances $150,000
Ex. 5–36
Cost of merchandise sold:
Merchandise inventory, November 1 $ 28,000
Purchases $475,000
Less: Purchases returns and
5-19
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CHAPTER 5 Accounting for Merchandising Businesses
Ex. 5–37
Cost of merchandise sold:
Merchandise inventory, July 1 $ 190,850
Purchases $1,126,000
Less: Purchases returns and
allowances $46,000
Ex. 5–38
2. Purchases returns and allowances and purchases discounts should be deducted
from (not added to) purchases.
4. Freight in should be added to net purchases to yield cost of merchandise
purchased.
5. The merchandise inventory at May 31, 2016, should be deducted from
merchandise available for sale to yield cost of merchandise sold.
A correct cost of merchandise sold section is as follows:
Cost of merchandise sold:
Merchandise inventory, June 1, 2015 $ 91,300
Purchases $1,110,000
Less: Purchases returns and

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