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    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 ...

    Solution Summary

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