Full Name: Natalie Jimenez

Exercise Set A

Note: All of the following assessments assume a perpetual inventory system unless otherwise noted.

• LO 6.1 On March 1, Bates Board Shop sells 300 surfboards to a local lifeguard station at
a sales price of $400 per board. The cost to Bates is $140 per board. The terms of the sale are 3/15, n/30,
with an invoice date of March 1. Create the journal entries for Bates to recognize the following
transactions.
• the initial sale
• the subsequent customer payment on March 10
Solution
•
Mar. 1
Accounts Receivable
$120,000

Sales

$120,000

To recognize sale of 300 surfboards, terms 3/15, n/30

Mar. 1
Cost of Goods Sold
$42,000

Merchandise Inventory

$42,000

To recognize cost of sale

•
Mar. 10
Cash
$116,400

Sales Discounts
$3,600
 Accounts Receivable

$120,000

To recognize customer payment, less discount

• LO 6.1 Marx Corp. purchases 135 fax machines on credit from a manufacturer on April 7
at a price of $250 per machine. Terms of the purchase are 4/10, n/20 with an invoice date of April 7.
Marx Corp pays in full for the fax machines on April 17. Create the journal entries for Marx Corp. to
record:
• the initial purchase
• the subsequent payment on April 17
Solution
•
Apr. 7
Merchandise Inventory
33,750

Accounts Payable

33,750

To recognize purchase of fax machine, terms 4/10, n/20

•
Apr. 17
Accounts Payable
33,750

Cash

32,400

Merchandise Inventory

1,350

To recognize payment, less discount

• LO 6.1 Match each of the following terms with the best corresponding definition. Place
the roman numeral from the definition next to the letter from the term.
Solution
A. Sales allowance: iii
i. A consumer returns merchandise for a full refund
B. Purchase return: vi
ii. A retailer receives a partial refund but keeps the defective merchandise
C. Sales discount: iv

iii. A consumer receives a partial refund but keeps the defective merchandise
D. Purchase discount: viii

iv. A consumer pays their account in full within the discount window
E. Sales return: i

v. A type of purchase discount negotiated between a manufacturer and a retailer before settlement on a final
price
F. Trade discount: v
vi. A retailer returns merchandise for a full refund
G. Purchase allowance: ii

vii. A retailer pays their account in full within the discount window

• LO 6.2 The following is selected information from Mars Corp. Compute net purchases,
and cost of goods sold for the month of March.
Inventory, February 28, 2018
$450,000
Inventory, March 31, 2018
330,500
Purchase discounts
12,450
Purchase returns and allowances
23,870
Sales
276,900
Sales discounts
34,660
Gross purchases
120,400

Solution
Net Purchases = $84,080
Cost of Goods Sold = $203,580

• LO 6.2 On April 5, a customer returns 20 bicycles with a sales price of $250 per bike to
Barrio Bikes. Each bike cost Barrio Bikes $100. The customer had yet to pay on their account. The bikes
are in sellable condition. Prepare the journal entry or entries to recognize this return if the company uses
• the perpetual inventory system
• the periodic inventory system
Solution
• Perpetual
Apr. 5
Sales Returns and Allowances
$5,000

Accounts Receivable
 $5,000

To recognize sales return under perpetual inventory

system

Apr. 5
Merchandise Inventory
$2,000

Cost of Goods Sold

$2,000

To recognize cost of inventory returned

• Periodic
Apr. 5
Sales Returns and Allowances
$5,000

Accounts Receivable

$5,000

To recognize sales return under periodic inventory system; no cost entry recorded

• LO 6.3 Record journal entries for the following purchase transactions of Flower
Company.
Oct. 13
Purchased 85 bushels of flowers with cash for $1,300.
Oct. 20
Purchased 240 bushels of flowers for $20 per bushel on credit. Terms of the purchase are 5/10, n/30, invoice
dated October 20.
Oct. 30
Paid account in full from the October 20 purchase.
Solution
Oct. 13
Merchandise Inventory
1,300

Cash
 1,300

To recognize inventory purchase with cash

Oct. 20
Merchandise Inventory
4,800

Accounts Payable

4,800

To recognize inventory purchase, 5/10, n/30, 240 × $20

Oct. 30
Accounts Payable
4,800

Merchandise Inventory

240

Cash

4,560

To recognize payment, less discount, 4,800 × 5%

• LO 6.3 Record journal entries for the following purchase transactions of Apex Industries.
Nov. 6
Purchased 24 computers on credit for $560 per computer. Terms of the purchase are 4/10, n/60, invoice dated
November 6.
Nov. 10
Returned 5 defective computers for a full refund from the manufacturer.
Nov. 22
Paid account in full from the November 6 purchase.
Solution
Nov. 6
Merchandise Inventory
$13,440
 Accounts Payable

$13,440

To recognize inventory purchase on credit, 4/10, n/60

Nov. 10
Accounts Payable
$2,800

Merchandise Inventory

$2,800

To recognize return 5 computers, full refund

Nov. 22
Accounts Payable
$10,640

Cash

$10,640

To recognize payment, less return, did not make discount

window

• LO 6.3 Record the journal entry for each of the following transactions. Glow Industries
purchases 750 strobe lights at $23 per light from a manufacturer on April 20. The terms of purchase are
10/15, n/40, invoice dated April 20. On April 22, Glow discovers 100 of the lights are the wrong model
and is granted an allowance of $8 per light for the error. On April 30, Glow pays for the lights, less the
allowance.
Solution
Apr. 20
Merchandise Inventory
17,250
Accounts Payable

17,250

To recognize inventory purchase on credit, 10/15, n/40,

750 × $23

Apr. 22
Accounts Payable
800

Merchandise Inventory

800

To recognize allowance 100 lights, $8 each, 100 × $8

Apr. 30
Accounts Payable
16,450

Merchandise Inventory

1,645

Cash

14,805

To recognize payment, less allowance and discount,

$17,250 – $800; $16,450 × 10%

• LO 6.4 Record journal entries for the following sales transactions of Flower Company.
Oct. 12
Sold 25 bushels of flowers to a customer for $1,000 cash; cost of sale $700.
Oct. 21
Sold 40 bushels of flowers for $30 per bushel on credit. Terms of the sale are 4/10, n/30, invoice dated October
21. Cost per bushel is $20 to Flower Company.
Oct. 31
Received payment in full from the October 21 sale.
Solution
Oct. 12
Cash
$1,000

Sales

$1,000

To recognize sale with cash

Oct. 12
Cost of Goods Sold
$700

Merchandise Inventory

$700

To recognize cost of sale

Oct. 21
Accounts Receivable
$1,200

Sales

$1,200

To recognize sale on credit, 4/10, n/30

Oct. 21
Cost of Goods Sold
$800

Merchandise Inventory

$800
 To recognize cost of sale

Oct. 31
Cash
$1,152

Sales Discounts
$48

Accounts Receivable

$4,200

To recognize customer payment, less discount

• LO 6.4 Record the journal entries for the following sales transactions of Apache
Industries.
Nov. 7
Sold 10 computers on credit for $870 per computer. Terms of the sale are 5/10, n/60, invoice dated November 7.
The cost per computer to Apache is $560.
Nov. 14
The customer returned 2 computers for a full refund from Apache. Apache returns the computers to their
inventory at full cost of $560 per computer.
Nov. 21
The customer paid their account in full from the November 7 sale.
Solution
Nov. 7
Accounts Receivable
8,700

Sales

8,700

To recognize sale on credit, 5/10, n/60

Nov. 7
Cost of Goods Sold
5,600
Merchandise Inventory

5,600

To recognize cost of sale, 10 × $560; 10 × $870

Nov. 14
Sales Returns and Allowances
1,740

Accounts Receivable

1,740

To recognize return 2 computers, full refund

Nov. 14
Merchandise Inventory
1,120

Cost of Goods Sold

1,120

To recognize return 2 computers, full refund, 2 × $870;

2 × $560

Nov. 21
Cash
6,960

Accounts Receivable

6,960

To recognize payment, less return, did not make discount

window, $8,700 – $1,740

• LO 6.4 Record the journal entry or entries for each of the following sales transactions.
Glow Industries sells 240 strobe lights at $40 per light to a customer on May 9. The cost to Glow is $23
 per light. The terms of the sale are 5/15, n/40, invoice dated May 9. On May 13, the customer discovers
50 of the lights are the wrong color and are granted an allowance of $10 per light for the error. On May
21, the customer pays for the lights, less the allowance.
Solution
May 9
Accounts Receivable
$9,600

Sales

$9,600

To recognize sale on credit, 5/15, n/40

May 9
Cost of Goods Sold
$5,520

Merchandise Inventory

$5,520

To recognize cost of sale

May 13
Sales Returns and Allowances
$500

Accounts Receivable

$500

To recognize allowance 50 lights, $10 each

May 21
Cash
$8,645

Sales Discounts
$455
 Accounts Receivable

$9,100

To recognize payment, less allowance and discount

• LO 6.5 Review the following situations and record any necessary journal entries for
Mequon’s Boutique.
May 10
Mequon’s Boutique purchases $2,400 worth of merchandise with cash from a manufacturer. Shipping charges
are an extra $130 cash. Terms of the purchase are FOB Shipping Point.
May 14
Mequon’s Boutique sells $3,000 worth of merchandise to a customer who pays with cash. The merchandise has
a cost to Mequon’s of $1,750. Shipping charges are an extra $150 cash. Terms of the sale are FOB Shipping
Point.
Solution
May 10
Merchandise Inventory
2,400

Cash

2,400

To recognize purchase, FOB Shipping Point

May 10
Merchandise Inventory
130

Cash

130

To recognize shipping charges, FOB Shipping Point

May 14
Cash
3,000

Sales
 3,000

To recognize sale with cash, FOB Shipping Point

May 14
Costs of Goods Sold
1,750

Merchandise Inventory

1,750

To recognize cost of sale

• LO 6.5 Review the following situations and record any necessary journal entries for
Letter Depot.
Mar. 9
Letter Depot purchases $11,420 worth of merchandise on credit from a manufacturer. Shipping charges are an
extra $480 cash. Terms of the purchase are 2/10, n/40, FOB Destination, invoice dated March 9.
Mar. 20
Letter Depot sells $7,530 worth of merchandise to a customer who pays on credit. The merchandise has a cost
to Letter Depot of $2,860. Shipping charges are an extra $440 cash. Terms of the sale are 3/15, n/50, FOB
Destination, invoice dated March 20.
Solution
Mar. 9
Merchandise Inventory
$11,420

Accounts Payable

$11,420

To recognize purchase on credit, FOB Destination, 2/10,

n/40

Mar. 20
Accounts Receivable
$7,530

Sales

$7,530
 To recognize sale on credit, FOB Destination, 3/15, n/50

Mar. 20
Cost of Goods Sold
$2,860

Merchandise Inventory

$2.860

To recognize cost of sale

Mar. 20
Delivery Expense
$440

Cash

$440

To recognize shipping charges, FOB Destination

• LO 6.5 Review the following situations and record any necessary journal entries for Nine
Lives Inc.
Jan. 15
Nine Lives Inc. purchases $8,770 worth of merchandise with cash from a manufacturer. Shipping charges are an
extra $345 cash. Terms of the purchase are FOB Shipping Point.
Jan. 23
Nine Lives Inc. sells $4,520 worth of merchandise to a customer who pays with cash. The merchandise has a
cost to Nine Lives of $3,600. Shipping charges are an extra $190 cash. Terms of the sale are FOB Destination.
Solution
Jan. 15
Merchandise Inventory
8,770

Cash

8,770

To recognize purchase, FOB Shipping Point

Jan. 15
Merchandise Inventory
345

Cash

345

To recognize shipping charges, FOB Shipping Point

Jan. 23
Cash
4,520

Sales

4,520

To recognize sale with cash, FOB Destination

Jan. 23
Cost of Goods Sold
3,600

Merchandise Inventory

3,600

To recognize cost of sale

Jan. 23
Delivery Expense
190

Cash

190

To recognize shipping charges, FOB Destination

 • LO 6.6 The following select account data is taken from the records of Reese Industries
for 2019. [Note: It is easiest if you solve part D before solving parts A-C.]
Sales
$640,363
Merchandise inventory
582,620
Sales discounts
58,040
Interest expense
3,677
Sales returns and allowances
90,232
Interest revenue
10,268
Cost of goods sold
224,598
Rent expense
15,080
Depreciation expense: office equipment
3,200
Insurance expense
2,450
Advertising expense
12,906
Accounts receivable
100,440
Office supplies expense
1,600
Rent revenue
23,622
Sales salaries expense
30,410
Accounts payable
135,404
Common stock
59,419
Marketing expense
31,000
• Use the data provided to compute net sales for 2019.
• Prepare a simple income statement for the year ended December 31, 2019.
• Compute the gross margin for 2019.
• Prepare a multi-step income statement for the year ended December 31, 2019.

Solution
• Net sales: $492,091

•
Reese Industries
Simple Income Statement
For Year Ended December 31, 2019
Revenues:
 Net sales
$492,091

Rent Revenue
$23,622

Interest Revenue
$10,268
_______
Total Revenues
$525,981

Expenses:

Cost of Goods Sold

$224,598

Total Selling Expenses

$74,316

Total General and Administrative Expenses

$22,330

Interest Expense
__$3,677_____

Total Expenses

$324,921_______
Net Income

$201,060
• Gross margin: $267,493
•
Reese Industries
Multi-step Income Statement
For Year Ended December 31, 2019
Sales:

$640,363
Sales Discounts
$58,040

Sales Returns and Allowances

__$90,232_____
$148,272_______
Net sales
 $492,091
Cost of Goods Sold

$224,598_______

Gross Margin:

$267,493
Operating Expenses:

Selling Expenses

Advertising Expense
$12,906

Marketing Expense
$31,000

Sales Salaries Expense

__$30,410_____

Total Selling Expenses

$74,316

General and Administrative Expenses:

Depreciation Expense-Office Equipment

$3,200

Office Supplies Expense

$1,600

Rent Expense
$15,080

Insurance Expense
__$2,450_____

Total General and Administrative Expenses

$22,330

Total Operating Expenses

$96,646_______
Income from Operations:

$170,847
Other Revenue and Expenses:

Interest Revenue
$10,268

Rent Revenue
$23,622

Interest Expense
_$3,677______

Total other revenue and expenses

$30,213_______
Net Income

$201,060

• LO 6.7 Record journal entries for the following purchase transactions of Flower
Company, using the periodic inventory method.
• On October 13, Flower Company purchased 85 bushels of flowers with cash for $1,300.
• On October 20, Flower Company purchased 240 bushels of flowers for $20 per bushel on
credit. Terms of the purchase were 5/10, n/30, invoice dated October 20.
• On October 30, Flower Company paid its account in full for the October 20 purchase.
Solution
•
Oct. 13
Purchases
$1,300

Cash

$1,300

To recognize inventory purchase with cash

•
Oct. 20
Purchases
$4,800

Accounts Payable

$4,800
 To recognize inventory purchase, 5/10, n/30

•
Oct. 30
Accounts Payable
$4,800

Purchase Discounts

$240

Cash

$4,560

To recognize payment, less discount

• LO 6.7 Record journal entries for the following purchase transactions of Apex Industries,
using the periodic inventory method.
Nov. 6
Purchased 24 computers on credit for $560 per computer. Terms of the purchase are 4/10, n/60, invoice dated
November 6.
Nov. 10
Returned 5 defective computers for a full refund from the manufacturer.
Nov. 22
Paid account in full from the November 6 purchase.
Solution
Nov. 6
Purchases: Computers
13,440

Accounts Payable

13,440

To recognize inventory purchase on credit, 4/10, n/60,

24×$560

Nov. 10
Accounts Payable
2,800

Purchases Returns and Allowances

 2,800

To recognize return 5 computers, full refund, 5 × $560

Nov. 22
Accounts Payable
10,640

Cash

10,640

To recognize payment, less return, did not make discount

window, $13,440 – $2,800

• LO 6.7 Record the journal entries for the following sales transactions of Julian Sundries.
Nov. 7
Sold 10 tables on credit for $870 per table. Terms of the sale are 5/10, n/60, invoice dated November 7. The cost
per table to Julian is $560. Use the periodic method.
Nov. 14
The customer returned 2 slightly damaged tables for a full refund from Julian.
Nov. 21
The customer paid their account in full from the November 7 sale.
Solution
Nov. 7
Accounts Receivable
$8,700

Sales

$8,700

To recognize sale on credit, 5/10, n/60

Nov. 14
Sales Returns and Allowances
$1,740

Accounts Receivable

$1.740

To recognize return 2 tables, full refund

Nov. 21
Cash
$6,960

Accounts Receivable

$6,960

To recognize payment, less return, did not make discount

window

• LO 6.7 Record the journal entry or entries for each of the following sales transactions.
Glow Industries sells 240 strobe lights at $40 per light to a customer on May 9. The cost to Glow is $23
per light. The terms of the sale are 5/15, n/40, invoice dated May 9. On May 13, the customer discovers
50 of the lights are the wrong color and are granted an allowance of $10 per light for the error. On May
21, the customer pays for the lights, less the allowance. Use the periodic method.
Solution
May 9
Accounts Receivable
9,600

Sales

9,600

To recognize sale on credit, 5/15, n/40, 240 × $40

May 13
Sales Returns and Allowances
500

Accounts Receivable

500

To recognize allowance 50 lights, $10 each, 50 × $10

May 21
Cash
8,645
Sales Discounts
455

Accounts Receivable

9,100

To recognize payment, less allowance and discount,

$9,600 – $500; $9,100 × 5%

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