Accounting: Systems of Merchandise
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SE1: Identify each of the following decisions as most directly related to (a) cash flow management, (b) profitability management, (c) choice of inventory system, or (d) control of merchandising operations.
1. Determination of how to protect cash from theft or embezzlement
(d) Control of merchandising operations
2. Determination of the selling price of goods for sale
(b) Profitability management
3. Determination of policies governing sales of merchandise on credit
(a) cash flow management
4. Determination of whether to use the periodic or the perpetual inventory system
(c) Choice of inventory system
SE2: Using the following data, prepare an income statement for Martin's Hardware for the month ended February 28:
Cost of goods sold $30,000
General and administrative expenses 8,000
Net sales 50,000
Selling expenses 7,000
Martin's Hardware
Income Statement
February 28
Net sales $50,000
Cost of goods sold 30,000
Selling expenses $7,000
General and administrative expenses $8,000
SE3: A dealer buys tooling machines from a manufacturer and resells them to its customers.
a. The manufacturer sets a list or catalogue price of $6,000 for a machine. The manufacturer offers its dealers a 40 percent trade discount.
b. Freight charges are FOB shipping point. The cost of shipping a machine is $350.
c. The manufacturer offers a sales discount of 2/10, n/30. The sales discount does not apply to shipping costs.
What is the net cost of the tooling machine to the dealer, assuming it is paid for within ten days of purchase?
Catalogue
6,000
-40% 2,400
3,600
FOB +350
3,950
2/10 n/30 (-2%) 79
3,871
SE4: Record in journal form the following transaction for Jenny's Crafts Store:
Apr. 19 A tabulation at the end of the day showed $400 in Visa invoices, which are deposited in a special bank account at full value less 5 percent discount.
SE5: Record in journal form each of the following transactions, assuming the perpetual inventory system used:
Aug. 2 Purchase merchandise on credit from Bean Company,
invoice dated August 1, shipping point, $2,300.
3 Received bill from Ace Shipping Company for transportation
Costs on August 2, for credit, $360.
7 Returned damaged merchandise received from Bean Company on August 2, for credit, $360
10 Paid in full the amount due to Bean Company for the
purchase of August 2, part of which was returned on August 7.
Aug. 2 Merchandise Inventory 2,300
Accounts Payable 2,300
terms n/10, FOB
3
7 Accounts Payable 360
Merchandise Inventory 360
Returned Merchandise
10
SE6: Record in journal form the following transactions, assuming the perpetual inventory system is used:
Aug. 4 Sold merchandise on credit to Konner Company, terms n/30,
FOB destination, $1,200, (Cost = $720)
5 Paid transportation costs for sale of August 4, $110.
9 Part of the merchandise sold on August 4 was accepted back
from Konner Company for full credit and returned to the merchandise inventory, $350. (Cost = $210)
Sept. 3 Received payment in full from Konner Company for
merchandise sold on August 4, less the return on August 9.
SE7: Record in journal for the transactions in SE5, assuming the periodic inventory system is used.
SE8: Using the following data and assuming cost of goods sold is $230,000, prepare the cost of goods sold section of a merchandising income statement (periodic inventory system), including computation of the amount of purchases for the month of October:
Freight in $12,000
Merchandise inventory, Sept. 30, 20xx 33,000
Merchandise inventory, Oct. 31, 20xx 44,000
Purchases ?
Purchases returns and allowances 9,000
SE9: Record in journal form the transactions in SE6 using the periodic inventory system.
SE10: Forrester Company had beginning merchandise inventory of $14,800 and ending merchandise inventory of $19,200. Where would these numbers appear on the work sheet and in the closing entries under (1) the perpetual inventory system and (2) the periodic inventory system?
SE11: On April 15, Farid Company sold merchandise to Smarte Company for $1,500 on terms of 2/10, n/30. Record the entries in both Farid's and Smarte's records for (1) the sale, (2) a return of merchandise on April 20 of $300, and (3) payment in full on April 25. Assume both companies use the periodic inventory system.
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SE1: Identify each of the following decisions as most directly related to (a) cash flow management, (b) profitability management, (c) choice of inventory system, or (d) control of merchandising operations.
1. Determination of how to protect cash from theft or embezzlement
(d) Control of merchandising operations
2. Determination of the selling price of goods for sale
(b) Profitability management
3. Determination of policies governing sales of merchandise on credit
(a) cash flow management
4. Determination of whether to use the periodic or the perpetual inventory system
(c) Choice of inventory system
SE2: Using the following data, prepare an income statement for Martin's Hardware for the month ended February 28:
Cost of goods sold $30,000
General and administrative expenses 8,000
Net sales 50,000
Selling expenses 7,000
Martin's Hardware
Income Statement
For the Month Ending February 28
Net sales $50,000
Less: Cost of goods sold 30,000
Gross Profit $20,000
Less: Selling expenses $7,000
General and administrative expenses $8,000
Total Expenses $15,000
Net Income $5,000
We need to find the gross profit by deducting cost of goods sold from the net sales. Then, we will deduct selling expenses and general and administrative expenses in order to get the net income.
SE3: A dealer buys tooling machines from a manufacturer and resells them to its customers.
a. The manufacturer sets a list or catalogue price of $6,000 for a machine. The manufacturer offers its dealers a 40 percent trade discount.
b. Freight charges are FOB shipping point. The cost of shipping a machine is $350.
c. The manufacturer offers a sales discount of 2/10, n/30. The sales discount does not apply to shipping costs.
What is the net cost of the tooling machine to the dealer, assuming it is paid for within ten days of purchase?
First, we need to find the cost after the trade discount. Then, we will calculate the sales discount from that amount before deducting it from the cost-after trade discount. Then, we will add the cost of shipping later. Sales discount is not applicable to cost of shipping.
Catalogue
6,000
Deduct trade discount (6,000 x 40%) 2,400
Cost after trade discount 3,600
Deduct sales discount 2/10 n/30
(3,600 x 2%) 72
Cost after sales discount 3,528
Add: FOB cost of shipping 350
Net cost 3,878
SE4: Record in journal form the following transaction for Jenny's Crafts Store:
Apr. 19 A tabulation at the end of the day showed $400 in Visa invoices, which are deposited in a special bank ...
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