Homework 06A

01. (LO 06-02) Based upon the following data for a business with a periodic inventory
system, determine the cost of merchandise sold for August.

Merchandise inventory, August 1 $75,560

Merchandise inventory, August 31 96,330
Purchases 373,880
Purchases returns and allowances 14,760
Purchases discounts 10,900
Freight in 4,135
02. (LO 06-06) The following data for the current year ended June 30 are from the
accounting records of Zanadu Co.:

Administrative expenses $28,750

Cost of merchandise sold 181,440
Interest expense 3,600
Rent revenue 1,500
Sales 534,440
Selling expenses 65,000

Prepare a multiple-step income statement for the year ended June 30.

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03. (LO 06-S01) Journalize the following transactions assuming the perpetual inventory
system:
Sold merchandise on account for $3,750 including terms.  The cost of the
July 3
merchandise sold was $2,000.
5 Issued credit memo for $1,050 for merchandise returned from sale on July 3.
The cost of the merchandise returned was $610.
12 Received check for the amount due for sale on July 3 less return on July 5.
17 Sold merchandise for $7,000 plus 6% sales tax to cash customers.  The cost
of the merchandise sold was $3,830.

Journal
Date Description Post. Ref. Credit

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04. (LO 06-03) Journalize the following transactions assuming a perpetual inventory
system:
Purchased merchandise from Archie Co., $6,000, terms FOB shipping point, 2/10,
May 5
n/30.
Prepaid freight costs of $100 were added to the invoice.
Issued a debit memo to Archie Co. for $2,500 of merchandise returned from
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purchase on May 5.
14 Paid Archie Co. for invoice of May 5, less debit memo of May 12 and discount.

Journal
Post.
Date Description Debit Credit
Ref.

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05. (LO 06-03) On March 15, Monroe Sales sells $9,525 on account to Garrison Brewer
with terms of 2/10, n/30. The cost of merchandise sold was $6,905.

(a) Journalize the sale and the recognition of the cost of the sale.
(b) On March 20, a $125 credit memo is given to Garrison Brewer due to merchandise
that was the wrong color. Journalize this event. The cost of the returned
merchandise was $65.
(c) On March 25, Garrison Brewer submits payment in full. Journalize this event.

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06. (LO 06-03) Details of invoices for purchases of merchandise are as follows:

Returns and
Merchandise Freight Terms
Allowances
(a) $2,800 $45 FOB shipping point, 1/10, n/30 $200
(b) 7,600 60 FOB destination, n/30 800
(c) 1,400 55 FOB shipping point, 2/10, n/30 600
(d) 500 50 FOB destination, 1/10, n/30 0

Determine the amount to be paid in full settlement of each of the invoices, assuming
that credit for returns and allowances was received prior to payment and that all
invoices were paid within the discount period.

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07. (LO 06-03) For each of the following, calculate the cost of inventory reported on the
balance sheet.
(a) The total merchandise on hand at the end of the year is $62,000.  Of the
$62,000, $8,000 has been sold FOB destination and is awaiting pickup by
the carrier.
(b) The total merchandise inventory at the end of the year was $63,000.
Excluded from the amount were purchases of $6,000 in transit under FOB
shipping point terms.
(c) The total merchandise inventory at the end of the year was $75,000.
Excluded from the amount were purchases of $5,000 in transit under FOB
destination terms.

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08. (LO 06-01) Match the term to the appropriate definition. There are more definitions
than terms.
Definitions Terms
A) Presents important subtotals, such as gross profit, to help distinguish core
operating results from other, less significant items that affect net income.
B) A reduction in the cost of inventory purchases associated with
unsatisfactory goods.
C) Refunds and price reductions given to customers after goods have been
sold and found unsatisfactory.
D) A ratio indicating the percentage of profit earned on each dollar of sales,
after considering the cost of products sold.
E) Net sales minus cost of goods sold. It is a subtotal, not an account.
F) A sales price reduction given to customers for prompt payment of their
account balance.
G) The sum of beginning inventory and purchases for the period.
H) A cash discount received for prompt payment of a purchase on account.
I) Assets acquired for resale to customers.
J) The cost of inventory lost to theft, fraud, and error.

Term
Inventory
Purchase Returns and Allowances
Shrinkage
Sales Returns & Allowances
Purchase Discount
Sales Discount

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09. (LO 06-04 & 06-06) During its first month of operations, Harry’s Nursey purchased
6,000 bags of fertilizer at a cost of $5 a bag and sold all 6,000 bags of fertilizer on
account with payment terms of 3/10, n/30 for $10 each. A total of 2,600 of these
bags were sold to customers who paid within the discount period; the other
customers paid after the discount period had ended. Sales allowances totaling
$200 were granted to customers whose gardens did not like the fertilizer.

Required:
a. Calculate the gross profit for the month.
b. Calculate the gross profit percentage for the month.

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10. (LO 6-S2) Yutz Company uses a periodic inventory system and its inventory records
for the period contain the following information:

Beginning inventory (75 units @ $50/unit) $3,750

Purchases (150 units @ $50/unit) 7,500
Ending inventory (125 units @ $50/unit) 6,250

The journal entry necessary at the end of the period to transfer beginning inventory and
net purchases to cost of goods sold will include which of the following?
A) Credit Inventory for $6,250.
B) Debit Purchases for $11,250.
C) Debit Inventory for $6,250.
D) Debit Cost of Goods Sold for $11,250.

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11. (LO 06-05 & 06-S1) Two different companies, Vogel and Hatcher, entered into the
following inventory transactions during December. Both companies use a
perpetual inventory system.

December 3 – Vogel Corporation sold inventory on account to Hatcher Corp. for

$240,000, terms 2/10, n/30. This inventory originally cost Vogel $160,000.

December 8 – Hatcher Corp. returned inventory to Vogel Corporation for a credit of

$15,000. Vogel returned this inventory to inventory at its original cost of $10,000.

December 12 – Hatcher Corp. paid Vogel Corporation for the amount owed.

Required:
a. Prepare the journal entries to record these transactions on the books of Vogel
Corporation.
b. What is the amount of net sales to be reported on Vogel Corporation's income
statement?
c. What is the Vogel Corporation's gross profit percentage?

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12. (LO 06-02) Match the term to the appropriate definition. There are more definitions
than terms.
Definitions Terms
A ratio indicating the percentage of profit earned on each dollar of
A)
sales, after considering the cost of products sold.
A sales price reduction given to customers for prompt payment of
B)
their account balance.
Presents important subtotals, such as gross profit, to help distinguish
C) core operating results from other, less significant items that affect
net income.
Expresses the relationship between inventory on hand, purchased,
D)
and sold; shown as either BI + P – EI = CGS or BI + P – CGS = EI.
Refunds and price reductions given to customers after goods have
E)
been sold and found unsatisfactory.
A cash discount received for prompt payment of a purchase on
F)
account.
G) The cost of inventory lost to theft, fraud, and error.
H) Net sales minus cost of goods sold. It is a subtotal, not an account.
A reduction in the cost of inventory purchases associated with
I)
unsatisfactory goods.
J) The sum of beginning inventory and purchases for the period.

Terms
Multistep Income Statement
Gross Profit Percentage
Goods Available for Sale
Gross Profit (or Gross Margin)
Cost of Goods Sold Equation

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