Accounting Principles (13th edition)
Chapter-05: Accounting for Merchandising Operations (Solution of selected problems)
E5.13, E5.14, E5.18, E5.19,E5.20, E5.21 P5.1A, P5.6A
E5.13 (LO 5) Presented below is financial information for two different companies.
Summer Company Winter Company
Sales revenue $92,000 (d)
Sales returns (a) 5,000 $ 5,000
Net sales 87,000 102,000
Cost of goods sold 56,000 (e)
Gross profit (b) 31,000 41,500
Operating expenses 15,000 (f)
Net income (b) 16,000 18,000
Instructions
a. Determine the missing amounts.
b. Determine the gross profit rates. (Round to one decimal place.)
Solution:
a.
Summer Company Winter Company
Sales revenue $92,000 (d) $ 107000
Sales returns (a) 5000 $ 5,000
Net sales 87,000 102,000
Cost of goods sold 56,000 (e) 60500
Gross profit (b) 31000 41,500
Operating expenses 15,000 (f) 23500
Net income (c) 16000 18,000
b. Gross profit rate= (Gross profit/Net sales)*100
Summer company= 31000/87000= 35.63%
Winter company=41500/102000= 40.69%
E5.14 (LO 5) Financial information is presented below for three different companies.
Hardy Cosmetics Yee Grocery Wang Wholesalers
Sales revenue $90,000 $ (e) $122,000
Sales returns and allowances (a) 5,000 12,000
Net sales 86,000 95,000 (i)
Cost of goods sold 56,000 (f) (j)
Gross profit (b) 38,000 24,000
Operating expenses 15,000 (g) 18,000
Income from operations (c) (h) (k)
Other expenses and losses 4,000 7,000 (l)
Net income (d) 11,000 5,000
Instructions
Determine the missing amounts.
Solution:
Hardy Cosmetics Yee Grocery Wang Wholesalers
Sales revenue $90,000 $ (e) 100000 $122,000
Sales returns and allowances (a) 4000 5,000 12,000
Net sales 86,000 95,000 (i) 110000
Cost of goods sold 56,000 (f) 57000 (j) 86000
Gross profit (b) 30000 38,000 24,000
Operating expenses 15,000 (g)20000 18,000
Income from operations (c) 15000 (h)18000 (k) 6000
Other expenses and losses 4,000 7,000 (l) 1000
Net income (c) 11000 11,000 5,000
E 5.18 (LO 7) On January 1, 2020, Brooke Hanson Corporation had inventory of $50,000. At
December 31, 2020, Brooke Hanson had the following account balances.
Freight-in $ 4,000
Purchases 509,000
Purchase discounts 6,000
Purchase returns and allowances 2,000
Sales revenue 840,000
Sales discounts 5,000
Sales returns and allowances 10,000
At December 31, 2020, Brooke Hanson determines that its ending inventory is $60,000.
Instructions
a. Compute Brooke Hanson’s 2020 gross profit.
b. Compute Brooke Hanson’s 2020 operating expenses if net income is $130,000 and there are
no non-operating activities.
Solution:
a.
Sales Revenue $ 840000
Less: Sales discounts 5000
Less: Sales return and allowance 10000
Net sales 825000
Less: Cost of Goods Sold
Beginning Inventory $50000
Purchase 509000
Purchase discount (6000)
Purchase return (2000)
Freight in 4000
Net purchase 505000
(-) Ending Inventory (60000)
Cost of goods sold 495000
Gross Profit 320000
b. Operating expense= Gross profit- net profit=320000-130000= 190000
*E 5.19 (LO 7) Below is a series of cost of goods sold sections for companies B, F, L, and R.
B F L R
Beginning inventory $ 180 $ 70 $1,000 $ (j)
Purchases 1,620 1,060 (g) 43,590
Purchase returns and allowances 40 (d) 290 (k)
Net purchases (a) 1,030 6,210 41,090
Freight-in 110 (e) (h) 2,240
Cost of goods purchased (b) 1,280 7,940 (l)
Cost of goods available for sale 1,870 1,350 (i) 49,530
Ending inventory 250 (f) 1,450 6,230
Cost of goods sold (c) 1,230 7,490 43,300
Instruction
Fill in the lettered blanks to complete the cost of goods sold sections.
Solution:
B F L R
Beginning inventory $ 180 $ 70 $1,000 $ (j) 6200
Purchases 1,620 1,060 (g) 6500 43,590
Purchase returns and allowances 40 (d) 30 290 (k)2500
Net purchases (a) 1580 1,030 6,210 41,090
Freight-in 110 (e) 250 (h) 1730 2,240
Cost of goods purchased (b) 1690 1,280 7,940 (l) 43330
Cost of goods available for sale 1,870 1,350 (i) 8940 49,530
Ending inventory 250 (f) 120 1,450 6,230
Cost of goods sold (c) 1620 1,230 7,490 43,300
E 5.20 (LO 7) This information relates to Nandi Co.
1. On April 5, purchased merchandise on account from Dion Company for $25,000, terms 2/10,
net/30, FOB shipping point.
2. On April 6, paid freight costs of $900 on merchandise purchased from Dion Company.
3. On April 7, purchased equipment on account for $30,000.
4. On April 8, returned some of April 5 merchandise, which cost $2,800, to Dion Company.
5. On April 15, paid the amount due to Dion Company in full. 22200
Instructions
a. Prepare the journal entries to record these transactions on the books of Nandi Co. using a
periodic inventory system.
b. Assume that Nandi Co. paid the balance due to Dion Company on May 4 instead of April 15.
Prepare the journal entry to record this payment.
Solution:
a)
Date Description Ref Debit Tk. Credit Tk.
April, Purchase A/C $25000
5 Accounts Payable $25000
Freight in 900
6 Cash A/C 900
Equipment A/C 30000
7 Accounts Payable 30000
Accounts Payable 2800
8 Purchase Return 2800
Accounts Payable (25000-2800) 22200
Cash (98%) 21756
15 Purchase discount (2%) 444
b)
Accounts Payable (25000-2800) 22200
May 4 Cash 22200
E 5.21 (LO 7) Presented below is information related to Chung Co.
1. On April 5, purchased merchandise on account from Jose Company for $21,000, terms 2/10,
net/30, FOB shipping point.
2. On April 6, paid freight costs of $800 on merchandise purchased from Jose.
3. On April 7, purchased equipment on account from Winker Mfg. Co. for $26,000.
4. On April 8, returned merchandise, which cost $4,000, to Jose Company.
5. On April 15, paid the amount due to Jose Company in full.
Instructions
a. Prepare the journal entries to record these transactions on the books of Chung Co. using a
periodic inventory system.
b. Assume that Chung Co. paid the balance due to Jose Company on May 4 instead of April 15.
Prepare the journal entry to record this payment.
Solution
a)
Date Description Ref Debit Tk. Credit Tk.
April, Purchase A/C $21000
5 Accounts Payable $21000
Freight in 800
6 Cash A/C 800
Equipment A/C 26000
7 Accounts Payable 26000
Accounts Payable 4000
8 Purchase Return 4000
Accounts Payable (21000-4000) 17000
Cash (98%) 16660
15 Purchase discount (2%) 340
b)
Accounts Payable (21000-4000) 17000
May 4 Cash 170000
P5.1A (LO 2, 3) Kern’s Book Warehouse distributes hardcover books to retail stores and
extends credit terms of 2/10, n/30 to all of its customers. At the end of May, Kern’s inventory
consisted of books purchased for $1,800. During June, the following merchandising transactions
occurred.
June Purchased books on account for $1,600 from Binsfeld Publishers, FOB destination,
1 terms 2/10, n/30. The appropriate party also made a cash payment of $50 for the freight on
this date.
3 Sold books on account to Reading Rainbow for $2,500. The cost of the books sold was
$1,440.
6 Returned $100 books to Binsfeld Publishers.
9 Paid Binsfeld Publishers in full, less discount. 1500 30 1470
15 Received payment in full from Reading Rainbow.
17 Sold books on account to Rapp Books for $1,800. The cost of the books sold was $1,080.
20 Purchased books on account for $1,800 from McGinn Publishers, FOB destination, terms
2/15, n/30. The appropriate party also made a cash payment of $60 for the freight on this date.
24 Received payment in full from Rapp Books.
26 Paid McGinn Publishers in full, less discount.
28 Sold books on account to Baeten Bookstore for $1,600. The cost of the books sold was $970.
30 Baeten Bookstore returned $120 books costing $72.
Instructions
Journalize the transactions for the month of June for Kern’s Book Warehouse using a perpetual
inventory system.
Solution
Date Description Ref Debit Tk. Credit Tk.
June, 1 Inventory A/C $1600
Accounts Payable $1600
Accounts Receivable 2500
3 Sales A/C 2500
Cost of Goods Sold 1440
Inventory A/C 1440
Accounts Payable 100
6 Inventory A/C 100
Accounts Payable (1600-100) 1500
9 Cash A/C (98%) 1470
Inventory A/C (2%) 30
Cash 2500
15 Accounts Receivable 2500
Accounts Receivable 1800
Sales A/C 1800
17
Cost of Goods Sold 1080
Inventory A/C 1080
20 Inventory A/C
Accounts Payable 1800 1800
24 Cash A/C (98%) 1764
Sales discount (2%) 36
Accounts Receivable 1800
26 Accounts Payable 1800
Cash A/C (98%) 1764
Inventory A/C (2%) 36
28 Accounts Receivable 1600
Sales A/C 1600
Cost of Goods Sold 970
Inventory A/C 970
30 Sales return and allowance
Accounts receivable 120 120
Inventory A/C
Cost of goods sold 72 72
P5.6A (LO 5, 7) At the end of Donaldson Department Store’s fiscal year on November 30, 2020,
these accounts appeared in its adjusted trial balance.
Freight-In $ 7,500 (Transportation Cost)
Inventory 40,000 Beginning Inventory
Purchases 585,000
Purchase Discounts 6,300
Purchase Returns and Allowances 2,700
Sales Revenue 1,000,000
Sales Returns and Allowances 20,000
Additional facts:
1. Merchandise inventory on November 30, 2020, is $52,600. Ending Inventory
2. Donaldson Department Store uses a periodic system.
Instructions
Prepare an income statement through gross profit for the year ended November 30, 2020.
Solution:
Sales Revenue $ 1000000
Less: Sales return and allowance 20000
Net sales 980000
Less: Cost of Goods Sold
Beginning Inventory $40000
Purchase 585000
Freight in 7500
Purchase discount (6300)
Purchase return (2700)
Net purchase 583500
Ending Inventory (52600)
Cost of goods sold 570900
Gross Profit 409100
